With immediate access via UPI and ATMs, the Employees’ Provident Fund Organisation (EPFO) plans to implement a significant modification to PF withdrawals. By the end of May or the beginning of June 2025, EPFO members will no longer have to endure drawn-out withdrawal processes. The National Payments Corporation of India (NPCI), which is in charge of the nation’s digital payment infrastructure, has approved the plan, which is supported by the Ministry of Labour and Employment.
Government Setting a Limit of INR 1 Lakh
With a withdrawal cap of up to INR 1 lakh, employees would have immediate access to their PF money, according to Sumita Dawra, Secretary, Ministry of Labour and Employment. Members would be able to monitor their PF balance directly on UPI and make instantaneous withdrawals using an automated mechanism by the end of May or early June, she told a news agency. For transfers, they can choose the bank account of their choice. Members will be able to easily fulfil urgent financial necessities thanks to the INR 1 lakh withdrawal limit. Withdrawals from PF are now a laborious procedure. Members of EPFO must file claims online and wait for approvals, which can occasionally take weeks. Employees will also be able to monitor their balances and conduct instant transactions thanks to the UPI connection.
In addition to the current option for medical crises, the EPFO is expanding the scope of fund withdrawals by permitting members to take money out for housing, education, and marriage. The goal of this expansion is to give the nation’s workers more financial flexibility. Dawra emphasised that in order to streamline withdrawals, EPFO has enhanced its digital infrastructure by integrating more than 120 databases. With 95% of claims now automated, the claim processing time has been reduced to only three days, and more advancements are planned.
Drafting these Reforms was a Big Challengee: Dawra
According to Dawra, implementing these improvements proved challenging. The enormous size of the EPFO is demonstrated by the number of its members. With 147 regional offices spread across the country, the organisation has over 7.5 crore active members and is still expanding, acquiring 10–12 lakh new members each month. Prime Minister Narendra Modi’s goal of “ease of living” for both businesses and employees is in line with these reforms, Secretary Dawra said. The project intends to modernise IT infrastructure, streamline social security procedures, and give Indian workers more financial ease. A major turning point in India’s digital financial transformation will be reached with the upcoming introduction of UPI and ATM-based PF withdrawals, which will provide millions of working professionals with previously unheard-of speed and ease.
Archaeological evidence from the era of 2000 BCE shows the beginning of the banking system with the first prototype that engaged in giving grain loans to farmers and traders. It also proves that money-lending was also an activity carried out in India and China as well. The historical roots of modern banking can be traced to medieval and renaissance Italy.
“Banking is defined as the business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to conduct economic activities such as making a profit or simply covering operating expenses.”
The primary role of a bank is to take in money, called deposits, pool them, and lend them to those who need funds. In essence, banks are intermediaries between depositors and borrowers.
A Short History
At the time, India won independence, and the major banks of the country were privately run. This created a potential problem as people from rural areas were dependent on money lenders for financial assistance.
With an aim to resolve this issue, the government decided to nationalize these banks. Between 1969 and 1991, twenty banks, whose national deposits were more than Rs. 50 crores, were nationalized. The banks that were nationalized include the Bank of Baroda, Bank of India, Central Bank of India, Punjab National Bank, Oriental Bank of Commerce, UCO Bank, Union Bank of India, and many others. Also, the State Bank of India was formed in 1955.
The Impact of Nationalization
There were many other reasons and considerations behind the government’s decision to nationalize banks.
It led to an increase in funds and helped raise the economy of the country.
It increased the efficiency of the banks.
It helped boost the rural and agricultural sectors of the country.
It helped boost employment.
The profit of the banks was used by the government for the betterment of the citizens.
Competition decreased leading to increased efficiency.
Liberalization – 1991 Till Date
This was one of the biggest developments in the Banking sector. RBI gave licenses to 10 private sector banks to establish themselves in the country. These include ICICI Bank, HDFC Bank, Axis Bank, and IDBI Bank.
This introduced a new era of the Banking model. As technology advanced so did the banking model evolve.
Evolution of the Banking Model – A comparison
Indian Banking Growth
Until the 1990s, the banking sector in India had adopted the traditional means of banking and maintaining records manually. However, with the financial reforms since 1993, the Indian banking sector had to accept computerization in order to cope with the increasing overload and incompatibility of the manual system to sustain further growth.
In 1993, the employees’ association of the Indian banks (IBA) contracted an agreement with the bank manager about the introduction of computerized applications in banks. This agreement was the major breakthrough in the introduction of computerized applications and the development of communication networks in banks.
Once the technology was introduced into the banking sector, it saw unprecedented growth and advancement. Traditional means of banking were rapidly replaced by e-banking options –
ATMs (Automated Teller Machines)
Automated Teller Machines (ATMs) or 24-hour Tellers are electronic terminals that allow banking activities almost anytime. To withdraw cash, make deposits, or transfer funds between accounts, an ATM card / Debit card is utilized. It offers a host of functions –
Cash Withdrawals
Balance inquiry
Mini Statements for accounts
Cheque or Cash Deposit facility
Funds Transfer
Payments
Telephone Banking
Telephone banking is a service provided by a bank or a financial institution, enabling customers to perform various financial transactions without the need to visit a bank branch or ATM. These transactions do not involve cash or financial instruments such as cheques. Banks have upgraded their phone banking services enabling customers to avail of a whole host of services with the help of a Voice Response System (VRS)
Check account balance and statement information.
Transfer funds between accounts.
Payment of bills like utility, credit cards, mobile, etc.
Request cheque book or account statements.
Demand Draft request.
Mobile Banking
Mobile Banking refers to the provision and availability of banking and financial services with the help of mobile telecommunication devices. Mobile banking facility is offered by most major banks in India. This has made banking transactions easy and hassle-free. Customers can use mobile banking to view their account balance, make instant fund transfers and pay bills, etc. There are various types of mobile banking services i.e., SMS, USSD, and mobile apps. Some of the banks have incorporated services like loan approval and linking of insurance policy in their mobile banking apps.
Access to Account Information.
e-statement of account.
Loan statements.
Card statements.
Third-Party Money Transfers.
Payments via NEFT/IMPS/RETG/UPI/MMID.
Investments in various financial tools.
Opening fixed deposit/recurring deposits.
Portfolio management services.
Online Banking
Also known as Internet banking or web banking allows a user to conduct financial transactions via the Internet. It offers customers almost every service traditionally available through a local branch including deposits, transfers, and online bill payments. The most prominent advantages of online banking are:
24/7 access and account service.
Speed and efficiency.
Online bill payments.
Cost-effective for banks.
Other services
The nature of banking services has evolved in the last 5 decades. Banks have also expanded their services to include various other peripheral services apart from traditional banking services.
– Investment Options:
Banks offer their own investment plans with a SIP option or one-time investment options which are, typically, stock market-related options.
– Insurance Options:
Banks have added a whole host of insurance options that they offer. Some options they offer are car insurance, house insurance, travel insurance, unit-linked life insurance policies, etc.
The Risks Attached
With advancements also come risks. The digitization of banks carries the same risks associated with the online internet world. There are security threats, privacy invasions, virus attacks, phishing scams, technological issues, money laundering risks, and many others.
Of course, there are actions that can be taken by both the customer and the bank itself to minimize the threats but they can never be completely eliminated. Banks, in particular, must adopt a robust security plan and keep it upgraded at all times to protect the confidentiality of data.
What Does The Future Hold
The mobile and the wireless market has been one of the fastest-growing markets in the world. The arrival of technology and the escalating use of mobile and smartphone devices have given the banking industry a new platform. Connecting a customer anytime and anywhere to their money and needs is a must-have service that has become an unstoppable necessity. This worldwide communication is leading a new generation of solid banking relationships.
At the pace at which technology is evolving, there is no way to know how the banking system will further evolve. The only certainty is that it will become more accessible and friendlier. It will grow to encompass other options and services for the benefit of its customers.
FAQs
What are the recent changes in the banking system?
A recent change in the banking sector is the emergence of e-banking, which is crucial in offering better services to clients.
What is the difference between traditional and modern banking?
Traditional banking requires you to go to a physical bank branch in order to access your account. However modern banking, allows you to conduct transactions from anywhere with an internet connection.
What was the aim behind the nationalization of banks?
The aim was to encourage businesses in order to serve better the needs of the country’s economy.
Which was the first nationalized bank?
The first bank in India to be nationalized was the Reserve Bank of India.
The Reserve Bank of India has announced a considerable number of changes in regards to the financial and non-financial transactions related to the ATMs in the country. The Central Bank has provided the permission for the banks to increases the charges from their customers. Let’s look at the latest Financial service Fees and charges revised by RBI.
A banking charge will be applicable from 1 January 2022 where the bank customers will have to pay an amount of INR 21 if they exceed the monthly limits of the withdrawal from the ATM. The ATM charges which were in existence were around INR 20 per customer if they exceed the monthly limits of the free transactions provided by the bank.
On 10 June 2021, the Reserve Bank of India has provided the permission for the banks to increase the charges regarding cash and non-cash Automated Teller Machine for exceeding the number of free financial transactions available on a monthly basis from next year i.e., 2022.
Interchange Fee charged by the Banks Revised by RBI
The circular contained the information regarding the interchange fee charged by the Banks for the ATM transactions. The interchange fee for the ATM transactions is increased from INR 15 to INR 17 for each financial transaction and the interchange fee for the non-financial transactions is increased from INR 5 to INR 6, which will be effective August 1, 2021.
An interchange fee is paid by the banks to the operator of the ATM when a customer makes a transaction at an ATM that does not belong to the card-issuing bank.
The Interchange fee has been revised by the RBI from INR 20 to INR 21 if the customers exceed the monthly limits of the withdrawal from the ATM.
RBI added that the customers will continue to enjoy the benefits of free 5 transactions every month which will be inclusive of financial and non financial transactions. The free transactions will be available every month through the ATMs of the banks with which they have an account.
The customers will also be eligible to do transactions in the ATMs of other banks with a limit of 3 free transactions in the metro cities and in the non-metro cities the customers will be eligible for 5 free transactions from the ATMs of another bank.
RBI conveyed in a statement that in order to compensate the banks for the higher fee charges for interchange and due to the general increase in the costs, the Reserve Bank of India has allowed the Banks to increase the charges on ATM transactions to INR 21.
Number of ATM’s in India
Reason for the increase in the charges by RBI
The Reserve Bank of India has conveyed that the reasons for letting banks increase the fee and charges for the transactions were mainly due to the increase in the cost towards the maintenance of the ATMs and also the increase in the cost for the deployment of the ATMs.
The maintenance cost incurred by the banks and the white label ATM providers is considered to have the necessity to balance the expectations of the stakeholders of the financial institutions as well as providing a convenience to the customers.
The committee which decided on the ATM charges was established by the Reserve Bank of India back in the year 2019 in the month of June. The committee was set up under the chairmanship of VG Kannan who was the chairman of the Indian Banks’ association. The main aim for the setting up of the committee was to review the entire range of the ATM charges.
The recommendations of the committee were announced to the public by the Reserve Bank of India in the year 202o in the month of July and the recommendation was to use the population as a metric in order to measure the calculations for the ATM charges.
The Reserve Bank of India had also conveyed that the recommendations from the panel were examined in detail.
List of Financial Charges revised by the RBI
From January 1 2022, Customers will be charged INR 21 per ATM transaction after exhausting limit of free transactions which a customer is eligible to conduct from other banks’ ATMs. The interchange fee is hiked from the existing INR 20 to INR 21 per transaction.
The interchange fee for the ATM transactions for the Banks is increased from INR 15 to INR 17 for each financial transaction and for the non-financial transactions is increased from INR 5 to INR 6, which will be effective August 1, 2021.
Conclusion
The last change in the interchange fee in regards to the transactions of the ATMs was in the year 2012 and the charges that were paid by the customers were revised in the year August 2014. There has been a lot of time since there was a change in the charges on the customers regarding the use of ATMs and the transaction fees.
FAQ
Why has RBI revised Cash withdrawal charges?
The Reserve Bank of India has conveyed that the reasons for letting banks increase the fee and charges for the transactions were mainly due to the increase in the cost towards the maintenance of the ATMs and also the increase in the cost for the deployment of the ATMs.
What are the revised charges by RBI?
Customers will be charged INR 21 per ATM transaction after exhausting limit of free transactions and The interchange fee for the ATM transactions for the Banks is increased from INR 15 to INR 17 for each financial transaction and for the non-financial transactions is increased from INR 5 to INR 6.
What is interchange fee ATM?
An interchange fee is paid by the banks to the operator of the ATM when a customer makes a transaction at an ATM that does not belong to the card-issuing bank.
