Breaking barriers: ATMs as catalysts for financial inclusion in rural India

In recent years, India has undergone a significant shift in its financial landscape. India’s state of art digital public infrastructure, comprising elements such as Aadhaar, Unified Payments Interface, and Digi Locker has emerged as a revolutionary instrument for accelerating financial inclusion in the country and has also garnered widespread global attention and adoption. Against the backdrop of the pandemic, geo-political tensions, and natural calamities induced by climate change, financial inclusion has become an important prerogative for governments worldwide.

Being the most populous country in the world, India has a large population that still lacks access to formal banking and financial services despite increased internet usage over the years. While the country’s flagship financial inclusion programme, Pradhan Mantri Jan-Dhan Yojana, has opened bank accounts for more than 327.5 million Indians, it is only one-fourth of India’s total population. A major part of rural and remote India is still devoid of bank accounts. As per a recent survey titled “The six-village story–India: An assessment of the real gap in financial inclusion” it has been found that while a majority of people in lower income groups have bank accounts, their usage is as low as once a month and that too for withdrawal. For people without bank accounts, travel distance to a financial institution (bank branch) remained one of the top reasons apart from not having enough money to put in bank accounts. This situation perpetuates socio-economic disparities, limits opportunities for growth, and hampers the overall development of these communities. The imperative is for the government to gradually raise awareness about the benefits of having bank accounts and build people’s trust in the banking ecosystem.

People living in semi-urban and rural areas are slightly averse to digital payments due to a lack of awareness and trust in technology. While it may not be feasible to establish bank branches in these areas, Automated Teller Machines (ATMs) have proven to be transformative tools for enhancing financial inclusion. ATMs can be installed within accessible distances for people to conduct both financial and non-financial transactions. They provide individuals with convenient and secure access to a range of banking services, including cash withdrawals, deposits, fund transfers, and balance inquiries. Apart from cash withdrawals, they also provide an array of services, including account information, cash deposits, bill payments, mini/short statement generation, PIN changes, etc.

By increasing the deployment of ATMs in rural and remote areas, people will also be incentivised to enroll themselves in the banking ecosystem and gradually trust and adopt digital payments in the future. As tourism is one of the key income generators in this region, digital payment adoption will be a boon for smaller players in the tourism ecosystem. On the other hand, as instances of natural disasters are at an all-time high, an emergency reserve of cash is extremely crucial. Easy access to ATMs will provide people with a sense of security that their money can easily be withdrawn in case of emergency, without having to travel long distances to the bank branch.  

However, as per recent reports, the ATM industry has been hesitant to deploy more ATMs in the rural and remote regions of the country due to the unviable interchange rates. The ATM ecosystem in India is dependent on an interchange fee which is paid by a customer’s bank to the bank whose ATM is used for availing banking services. This was last revised in 2021 as per the Report of the RBI Review Committee on the Interchange Fees, 2019 and stakeholders from the industry have been voicing their concerns with this rate of interchange fees. They believe that a revision in the interchange fee in view of the exponentially high rate of inflation and other operational and logistical costs will incentivise the industry.

The RBI could consider formulating enabling policies that would incentivise and encourage the installation of more rural ATMs by both big and small banks.

Expanding the network of ATMs to remote areas in India holds immense promise for advancing financial inclusion and reducing socio-economic disparities. By providing convenient access to banking services, empowering individuals, and stimulating economic growth, ATMs can be pivotal in transforming the lives of millions of people who currently lack access to formal financial systems. To achieve this, collaborative efforts among government bodies, financial institutions, technology providers, and local communities are essential. As India continues its journey towards greater financial inclusion, the strategic deployment of ATMs in these areas could play a crucial role in shaping a more financially inclusive and prosperous society.

Sabyasachi Dutta, Executive Director at Asian Confluence.