What’s Causing the ATM Shortage in India?

ATMs are crucial for banking, yet we always seem to need more. The Reserve Bank of India (RBI) data shows only a 14% increase in ATMs from 2016 to 2024.

This shortfall isn’t just about low demand. Yes, digital payments have reduced ATM usage, but the bigger issue lies in supply constraints, stemming from RBI initiatives and the “Make in India” policy.

Here’s the situation:

RBI values secure and theft-proof ATMs. However, the current cash replenishment process is far from ideal. Bank staff prepare currency bundles and cash-in-transit (CIT) personnel transport and load the cash into ATMs. This manual, time-consuming process requires the CIT to take extensive precautions to prevent theft and ensure no customers are present, making the machine temporarily unusable.

In 2018, RBI directed banks to use lockable cash cassettes in ATMs by March 31, 2021. These cassettes, pre-loaded with cash, allow for a quick swap, reducing security risks. However, banks faced a challenge. RBI estimated the cost of cassette swaps at Rs 160 crore, but banks argued it would exceed Rs 3,000 crore. Eventually, RBI extended the deadline to March 31, 2024.

Despite this, banks still struggle to comply. The challenge isn’t just financial but also logistical. Retrofitting ATMs with lockable cassettes requires collaboration with ATM manufacturers and service providers.

One might think manufacturers are to blame, but the issue is more complex. Manufacturers aren’t just selling retrofit kits; they must replace 40,000 old ATMs, install 10,000 new ones, and add cash recycling machines (CRMs), which accept deposits and dispense cash, minimizing the need for frequent replenishment.

The “Make in India” initiative adds another layer of complexity. Instituted in 2014 and expanded in 2020, it aims to boost domestic production, including ATMs. However, critical components like cash dispensers and card readers often need to be imported due to technological challenges. The guidelines mandate a certain percentage of locally sourced components, limiting options for manufacturers.

Additionally, ATMs must meet various certifications and standards (such as EMV, PCI DSS, and ISO) for security and functionality. Domestic manufacturers, lacking experience or resources, struggle to comply, slowing the supply chain’s maturation.

Further complicating matters, public sector banks must procure new ATMs through the Government e-Market (GeM) portal, launched in 2016 for central government procurement. Not all ATM vendors are registered on GeM, restricting banks’ options.

Banks are now appealing to RBI and the government to extend the deadline and relax the “Make in India” guidelines to meet the lockable cassette directive.

Whether the government and RBI will accommodate these requests remains uncertain. Without compromise, upgraded ATMs may remain scarce, impacting India’s financial infrastructure and stock market landscape.