ICICI Bank withdraws from ATM connectivity platform

The Reserve Bank of India-sponsored National Financial Switch (NFS), a common platform to ensure inter-connectivity of ATM networks and to provide for funds settlement across various banks, has run into distress.

ICICI Bank, the only bank with a large ATM network participating in the NFS, has decided to withdraw from the platform, banking sources said.

State Bank of India (SBI), UTI Bank and HDFC Bank "" which own the other large ATM networks "" have kept distance from NFS and are not keen on making their ATMs available to customers of other banks through the NFS platform, the sources said.

ICICI Bank's decision to pull out of NFS was prompted by the decision to slash charges per transaction on the NFS network by 55 per cent to Rs 9 from Rs 20 with effect from October 1, 2005, the sources said. ICICI Bank officials declined to comment on the bank's decision to exit NFS platform.

The NFS is managed by RBI's Institute for Development and Research in Banking Technology (IDRBT). The institute sharply reduced transaction charges to enable most banks to become members of its ATM switch and save them from the trouble of having to individually enter into bilateral agreements with banks having large ATM networks.

The central bank felt the reduction in charges on NFS will not only enable more banks to join the platform, but also encourage banks to absorb a part of the cost rather than charge the entire cost to customers. In its technology vision for banks, RBI had listed implementation of NFS as one of the major landmarks.

A senior banker claimed that the reduced charge of Rs 9 per transaction does not even cover the average overhead cost per transaction.

"The earlier price of Rs 20 was a much comfortable level. A bank like ICICI Bank having a large ATM network is the most affected. Anyway, the bank cannot absorb a part of the cost for the customers of other banks. The decision to cut transaction charges on NFS has not gone down well with SBI, UTI Bank and HDFC Bank too," the banker said.

The Rs 9 per transaction a bank customer pays for using an ATM of another bank is shared between the bank owning the ATM and IDRBT. Out of Rs 9, Rs 8 goes to the bank owning the ATM and Re 1 to IDRBT.

Earlier, out of the transaction charges of Rs 20, Rs 18 went to the bank and Rs 2 to the institute.

In contrast, the ATM networks managed by Punjab National Bank and ATM services provider Euronet still charge a fee of Rs 20 and Rs 25 per transaction, respectively.

Cashtree and Bancs, the shared ATM networks set up by groups of banks, too are hesitant to join the NFS platform as they view it as a potential competitor, sources said.

RBI's IDBRT had mooted the NFS about a year ago with the aim of making it a hub for all ATM networks in the country and to provide inter-connectivity to ATM networks of all banks. The NFS network has 5,000 ATMs and around 12,000 transactions are carried on this platform every day.

Currently, NFS has 16 member banks, which include state-owned players such as Allahabad Bank, Andhra Bank, Bank of Baroda, Corporation Bank, IDBI Bank, Punjab National Bank and Oriental Bank of Commerce.

Participants from the private sector include ICICI Bank , J&K Bank, Karnataka Bank, United Western Bank, Dhanalakshmi Bank, Tamilnad Mercantile Bank, South Indian Bank, Karur Vysya Bank and Yes Bank.