Cash is nice. And large dollops of it are nicer. Its been a fact in semi-urban and rural India for some time. One that public sector banks are waking up to, though a little late in the day. Tired of pushing the inflexible contours of the plastic money market in the metros and other big cities to expand business, banks are now speed-installing automated teller machines (ATMs) in mini metros and smaller cities.
One of the late entrants is the giant State Bank of India (SBI). The bank has only about 200 ATMs in place across the country. Until last year, the SBI had failed to realise in time the tremendous potential of anytime money in the Indian market. The same thing had happened to the bank in the case of credit cards-deliberations continued with American Express for long before Amex was replaced with GE Caps and the SBI card launched last year. In the case of ATMs, however, the bank moved faster. Because it was hamstrung by a deal it had entered into with its trade unions. The deal limited the banks expansion of ATMs beyond a certain number. It was a self-inflicted wound for a bank which has the widest reach in the country-9,000 branches and a 20-million customer base.
"And for once, the unions agreed," says general manager T.S. Vaidyanathan. "It was the start of the process of dismantling the brick-and-mortar system. We realised there was need to reduce cash handling in the branches and utilise them for other operations of the financial market."
SBI is looking forward to instal at least 1,000 machines in the coming year. A number which could well be inadequate. "Wed have a similar situation in the next three to four years as more and more people would prefer the ATMs because its hassle-free. There is no need to crowd the banks if you are there to pick up a few thousands," says Vaidyanathan.
Market observers agree. They find definitive parallels between the Indian market and that of neighbouring China. The latter had a slow beginning in the ATM market and managed to instal only about 1,000-1,500 machines in the first three years. In the next seven years, ATMs came up just about everywhere to touch a whopping 40,000. Clearly, with further liberalisation, two things happen. As spending needs go up, more and more people need more cash. Also, they tend to avoid the crowded environs of a bank and go in for faster withdrawal and deposit. India too could be facing similar conditions.
According to studies by National Council of Applied Economic Research (ncaer), a higher GDP growth of 6.4 per cent over 1992-2000 has given a tremendous boost to consumption of fast-moving consumer goods (FMCGs), like packaged foods, Tetrapak beverages, toilet soaps and shampoos, especially in small towns and mini metros. So much so that this sector had more than 12 per cent per annum growth during the post-reforms period. Average annual household consumption expenditure on FMCGs doubled from Rs 2,387 to Rs 5,000 during this period, and the share of small towns and mini metros in the total growth was more than 55 per cent. The studies also show people in such areas make the bulk of their purchases in cash. Hence, the thrust on ATMs. "India is witnessing new trends in retail banking," says L. Anthony, country manager of the Indian subsidiary of the Ohio-based NCR Corporation. NCR Corp leads the Indian ATM market and has helped the RBI set up 15 of the 18 micr centres for automated cheque clearing.
This is the base domestic banks are trying to target. "Value-added features in ATMs are increasingly becoming popular as more and more Indians realise the value of time," says Anthony. From a current installed base of 1,500-1,700, ATMs "will reach anywhere between 2,500 and 3,000 by the end of this year", he adds.
Will ATMs finally be the weapon with which domestic banks can counter the foreign banks? Especially since in credit cards, they lag way behind. Despite a host of Indian banks getting into the plastic money market of late, the MNC banks continue to score over them in terms of penetration because of innovative marketing techniques like built-in facilities and co-branding. In terms of reach, Indian banks have an obvious advantage as they have a far greater number of branches strewn across India than their foreign counterparts.
Remarks M.Y. Khan, chairman of Jammu & Kashmir Bank which has ATMs at all its branches: "Technology is fast replacing the whole spectrum of traditional banking model with ideal distributive channels like ATMs and Internet banking. And considering that ATMs give you cash anytime, the demand for such machines will surely grow in the future."
KL. Muralidhara, senior director & country manager, American Express Bank, goes a step further: "ATMs have emerged on the firmament of Indias retail financial services, fulfilling one of the most important consumer needs-convenience. As markets have evolved and other media of exchange take precedence over hard cash, ATMs will constantly evolve in their functionality and include non-cash dispensing features as well (movie, train and flight tickets)."
The banks know it. And, expectedly, the order list is huge. UTI Bank recently ordered more than 250 such machines. Similar is the case with ICICI and HDFC. And its not happening only in the crowded neighbourhood of Thane in Mumbai which has more than 40 ATMs. Its happening across Amravati, Panchkula, Gorakhpur, Angul, Belgaum, Kheda, Mohali, Phagwara and even at drought-prone Bharuch in Gujarat.
One obvious factor that stands in the way of a faster progress is technical. The state-owned banks realise that-unlike their multinational counterparts-their credit cards are not compatible with ATMs. Which involves issuing another set of cards for the same. For example, at SBI, anyone with a savings account of Rs 5,000 (slashed from the previous stipulation of Rs 10,000) can pick up an ATM card. Trouble is, Indian banks have not completely networked their systems. As a result, an ATM transaction needs to be manually keyed into the mainframe computer. Besides, almost all state-owned banks-including SBI-take more than a month to replace an ATM card, compared to foreign banks which replace a credit card in 24 hours.
"But this will happen very soon. More and more Indians will soon realise withdrawing and depositing cash and also picking up chequebooks at ATMs is as easy as cash on the bank counter," adds Ravi Mohan Harjai, chief manager of IndusInd Bank. That is when the Indian banks would be able to take the battle right back into the court of their foreign rivals.