Money crisis in ATM!
Four states of the country are facing shortage of cash in ATM machines. According to people with knowledge of the matter, on Monday, cash management and logistics companies in Delhi, Karnataka, Haryana and Uttar Pradesh stopped filling cash in ATMs and related services for some time. This was done because existing contracts were no longer economically viable due to rising labor and fuel costs. This one-day interruption affected the functioning of ATMs and availability of cash in all four states. There were reports of intermittent interruptions in service due to regular cash replenishment cycles being halted.
However, industry officials say operations are expected to resume from Tuesday as many private sector banks have agreed to renegotiate contracts and make changes in service fees, while talks are on with other banks. However, public sector banks have so far stayed away from talks. This has raised concerns that if a solution is not found, ATMs run by public sector banks – especially in tier-2 and tier-3 cities, where they have the largest presence – may run into trouble.
Private sector agreed
A senior official of a cash logistics company, on the condition of anonymity, said in a media report that after some initiative from the private sector banks, the industry has agreed with the employees to resume full operations from Tuesday. While many private banks have acknowledged the need for higher payments or are actively negotiating revised commercial terms, no public sector bank has yet agreed to re-negotiate prices.
40 to 50 percent increase in wages
This disruption is a sign of increasing economic pressure on India’s cash management ecosystem. This sector is struggling with increase in labor expenses and high fuel prices after changes in minimum wages according to states. Industry officials estimate that labor costs have increased by 40-50 per cent in the past one year, while fuel costs have further eroded already thin margins. The total loss of the industry has exceeded Rs 100 crore and the industry is demanding compensation from the banks. Cash logistics companies had been insisting on the need for change in prices for the last several months. His argument was that the contracts signed years ago are no longer appropriate for the current operating costs. The increase in service fees that is being negotiated varies from bank to bank and depends on the terms and conditions of each contract.
Cash logistics operation in danger
Another industry official said the issue is not about demand for cash or use of ATMs. This is a matter of economics of providing service to the network. The current pricing models do not match current operating costs at all and unless the contracts are changed, the future of cash logistics operations will be at risk. This latest disruption comes after repeated warnings from the ATM and cash logistics industry. Last month itself, this industry had warned RBI and State Bank of India about the increasing financial pressure in the ATM ecosystem. The industry had warned that many ATM portfolios were falling below profitability due to increase in operating costs, problems in cash availability and decline in transaction volumes.
