How ATMs Lubricate Rural Economy in India?

For a lot of rural Indians, something as simple as accessing their own money required them walking several miles to visit the nearest branch. As per a World Bank report, about 40% of Indians do not have access to formal financial services. The unavailability is mostly prevalent in rural areas.

Thanks to the introduction of ATMs in India in the late 1980s, this inconvenience has mostly been eliminated. ATMs are not only making it easier for the rural population to access their money but is also lubricating the rural Indian economy in multiple ways.

ATMs: Helping the Rural Indian Economy ATMs serve as an economic lubricant, facilitating trade by offering cash nearly everywhere.
One of the most significant benefits of ATMs is their ability to provide cardholders access to their money 24×7. ATMs save cardholders transport costs and time by bringing self-service banking into convenient, non-branch locations near to where they live, work and shop.

This convenience not only enables the rural population to make retail purchases, it also results in increasing their spending capacity, and pumps more money into the rural economy. Moreover, ATMs play a vital touchpoint to reach the unbanked and underbanked through basic bank accounts for low income groups linked to an ATM card – an important step towards greater financial literacy for the poor.

Consumption Story of Rural India As per a 2018 report in Economic Times, the consumption in rural India grew at a rate of 9.7% in FY18. Urban consumption in the same period grew at 8.6%. In other words, rural India is now spending a higher amount of money on a host of consumer goods such as health, food, durables, and more.

While ATMs are not single-handedly responsible for higher consumption in rural areas, it does have a significant impact on the spending capacity. ATMs do act as a critical channel in the whole cash and spending cycle underpinning the consumer economy in rural geographies. Higher spending capacity generally results in changing habits, lifestyle, taste, and ultimately encourages higher consumption.

Lack of ATMs in Rural India While ATMs help improve the rural economy, the lack of teller machines in rural areas is severely limiting the growth. As of 2019, there are about 2,20,000 ATMs across more than 720 districts in the country of which approx. about 40,000 odd ATMs are in rural areas, where 62% of our population reside. India Fairs Poorly on ATM penetration vis-a-vis Emerging Markets with only 17 ATMs per lac people whereas China stands at approx. 63 ATMs per lac and Brazil with 81 ATMs per lac of population. Our most populous states of UP, Bihar have approx. only 6 to 9 ATMs per lac of population.

Banks have reduced ATM deployment As per reports published by the RBI, it has been noticed that Banks are mainly deploying in large cities. As of December 2019, Banks have deployed only 16% of their total ATMs in rural areas, whereas White Label ATM Operators (WLAO’s) have deployed over 48%. Also, among the top 30 rural deployers, 17 deployers have shrunk their ATM base in rural India (as on December 2019).

WLAs – The Way Ahead White Label ATMs are the most viable solution to tackle the ATM shortage in rural India. While the RBI approved WLAs in 2012, it is in the last few years that banks and even consumers have started realising its importance.

The RBI has recently taken several measures to boost WLAs further and improve their reach, especially in rural areas. As on December 2019, the top three WLA players have deployed over 9400 ATMs alone, which is significantly higher, than the numbers deployed by the top three banks in the country (excluding SBI).

The fact remains that ATMs are an extremely popular and trusted global technology which are at the forefront of retail-based economies. Besides, cash continues to be the preferred mode of payments in semi-urban and rural economies and ATMs are the main distribution channel for cashing out money. An increased stakeholder collaboration between RBI, banks, and WLA operators is needed to boost the number of ATMs in rural India and unleash their potential to augur the cash led Rural economy.