RBI Hikes ATM Interchange Fees – Cash Withdrawals To Cost More From May 1; What You Need To Know?

In recent developments, the Reserve Bank of India (RBI) along with the National Payments Corporation of India (NPCI) have sanctioned an enhancement of the ATM interchange fee by Rs 2 for each cash withdrawal transaction. This decision, aimed at adjusting the fee structure, will be put into action starting May 1, 2025. This adjustment follows a proposal from the ATM operators' association highlighted in an ET report on June 13, 2024, suggesting an increase to Rs 23 to bolster the profitability of their operations.

The decision to raise the fee was first agreed upon by the National Financial Switch Steering Committee on March 6, 2024, setting the new rates at Rs 19 for domestic financial transactions and Rs 7 for non-financial transactions. Subsequently, the NPCI approached the RBI to gain the necessary approval to implement these new rates. The revised fees will be additionally subject to the Goods and Services Tax (GST), which will be levied separately.

In a pivotal move on March 11, the RBI indicated in a letter that the determination of the ATM interchange fee should be a prerogative of the ATM network. Following this directive, the NPCI communicated the date of implementing the revised fees to the RBI, as revealed in a letter to its member banks, which was accessed and reviewed by ET. This change marks a significant update from the previous interchange fee increase in 2021, where the fee for ATM transactions rose from Rs 15 to Rs 17, and the maximum customer charge per transaction escalated from Rs 20 to Rs 21.

For transactions in Nepal and Bhutan, the revised structure specifies that the interchange fee for balance inquiries will be pegged at Rs 7, excluding GST. However, it is important to note that the revised fee schedule will not affect Micro-ATMs, interoperable cash deposit transactions, or international withdrawals from ATMs.

It has been confirmed by sources that the hike in the ATM interchange fee will ultimately be borne by the customers. Currently, banks cover the expenses related to the free transactions allowed to savings account holders in six metropolitan cities—Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, and New Delhi. These account holders benefit from five free transactions per month at their own bank's ATMs and three free transactions at other banks' ATMs.

In summary, the approval by the RBI and NPCI to increase the ATM interchange fee reflects an evolving banking landscape where operational costs and profitability are continually assessed. The implementation of these changes underscores the dynamic nature of financial services, with implications for both banks and their customers.