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Reserve Bank allows lenders to raise ATM interchange fee from August

ATM interchange fee

The Reserve Bank of India recently raised the ATM interchange fee that banks can charge on ATM transactions to 17 rupees per transaction. Earlier this fee was 15 rupees. It may be noted that the new fees will be effective from 1st August 2021.

What do you mean by the ATM interchange fee?

Interchange fee refers to the payments made by the card-issuing bank to the ATM operator when the customer uses an ATM that is not owned by the card issuing bank. Customers are entitled to 5 free transactions in a month from their own banks’ ATM, including financial and non-financial transactions. The customers are also permitted to use ATMs of other banks in metro cities for 3 free transactions.

The card issuing bank is called the issuer, and the other is called an acquirer. The charge is divided between the acquirer and the company that maintains the ATM. This is the reason why banks tend to discourage customers from using ATMs of other banks.  The interchange fee has been a cause of quarrel between banks and ATM deployment companies, with the ATM deployment companies seeking a hike in the fee to 18 rupees per transaction earlier.


In June 2019, RBI constituted a committee under the chairmanship of VG Kannan, CEO of Indian Banks’ Association, to review the ATM charges. The committee recommendations were made public in July 2020.

This committee recommended using population as a metric for calculating ATM charges. It suggested to increase free transactions at ATMs in all centres with a population of less than 1 million, as per Census 2011, to be reviewed from time to time, to 6 per month from 5 at present. In case of centres with more population, it had recommended retaining the free transaction limit at 3.

It further suggested that in case of ATMs in centres with a population of 1 million and above, the interchange fee should be raised by 2 rupees to 17 rupees for financial transactions and to 7 rupees for non-financial transactions. In case of locations with population of less than 1 million, it had recommended to raise the charges by 3 rupees for both kinds of transactions with a view to increase greater penetration of ATMs.

 RBI’s observations

The RBI stated that the recommendations of the committee had been examined comprehensively. It also observed that the last change in the interchange fee structure for ATM transactions was in the month of August 2012, whereas the charges payable by customers were revised last in August 2014.

Further, the RBI[1] stated that the customers are eligible for 5 free transactions, including the financial and non-financial transactions, each month from their own banks’ ATM. They are also entitled to free transactions from other bank ATMs, which includes 3 transactions in metro cities and 5 in non-metros.

After the end of free transactions, the ceiling on customer charges is 20 rupees per transaction at present, and it will be hiked to 21 rupees from January 2, 2022. This is expected to compensate banks for higher interchange fee and escalation in costs, RBI said.

Why the hike in ATM interchange fee?

Considering the increasing cost of the ATM deployment and expenses towards the maintenance of ATMs incurred by banks and white label ATM operators and also due to the need to balance the expectations of the stakeholder entities and customer convenience, the Reserve Bank announced its decision to increase the interchange fees for both financial and non-financial transactions.

Potential consequences of hike in ATM Interchange fees

Penetration of ATMs is expected to rise after this decision of hike by the RBI. Moreover, experts believe that it may incentivize banks as well as white label ATM deployers to set up increased number of cash dispensers, benefiting rural areas.

As per data from RBI, there were 213,575 bank ATMs in March 2021, slight increase of just over 1% from March last year. Apart from this, the number of white label ATMs that are set up, owned and operated by non-banks stood at 25k. The rural parts of India account for 20% of all ATMs in India.


The ATM industry confederation stated that the RBI decision to raise the ATM interchange fees would incentivize banks, managed services providers and white label ATM operators to raise the penetration of ATMs in semi-urban and rural areas, thus boosting the agenda of financial inclusion.

Read our Article: Interoperability of PPIs: RBI mandates pre-paid cards, wallets to be made interoperable


Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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