ATM Crisis: Lenders Scramble To Replace AGS Transact Amid Financial Woes

India's largest banks are facing growing challenges as AGS Transact Technologies, a key service provider for automated teller machines, grapples with financial instability.

State Bank of India and Union Bank of India are rapidly shifting hundreds and thousands of ATMs to other service providers before the end of March, following rising concerns about AGS Transact's ability to fulfill its obligations, three bankers aware of the development told NDTV Profit.

AGS Transact, which manages a significant portion of ATMs across India, is in the middle of a financial crisis, as it struggles to settle defaults totalling Rs 726 crore, outstanding GST dues, employee salaries, and payments to property owners of ATM locations.

Last week, the Reserve Bank of India held meetings with select banks which avail services from AGS Transact, to take stock of the situation, bankers said. Post this development, several banks including SBI and Union Bank of India conducted internal meetings and are scrambling to migrate from AGS Transact to other vendors for smooth functioning of their ATMs.

SBI, which relies on AGS for the operation of 7,000 ATMs, has already moved more than half of them and is set to complete the transition of about 2,000 machines by March 31, a senior bank official said.

Of the total 65,000 ATM network that SBI has, 38,000-39,000 are off-site ATMs managed by the vendors. At these ATMs, the cost is shared with the bank, while at on-site ATMs bank branches manage everything, a senior banker explained.

Under the off-site model, AGS takes care of ATM installations and SBI pays a fee based on transaction volumes.

Currently, about 4,000 ATMs, out of the 7,000 managed by AGS, are operational as the bank took action in February and moved those machines to other vendors, a senior banker explained.

The priority for SBI is to take back all ATMs and restart normal functioning, so that there is no inconvenience to customers, the banker said.

As of January, India recorded 2.57 lakh ATMs, according to RBI's monthly bulletin. Of these, around 35,000 ATMs were affected due to AGS, the banker quoted above explained.

Union Bank of India is in the process of replacing around 300-400 remaining machines with new providers, the third banker said. Around 2,000 ATMs of Union Bank of India are managed by AGS.

The public sector lender had initiated the shift nearly three-four months ago. Under the tender process, there is typically a 90-day implementation period. This includes selection of vendors on a request for proposal tender basis, followed by placing the order for manufacturing, delivery installation and so on, the third banker said.

Apart from these two banks, a recent report by Economic Times said that HDFC Bank, Axis Bank, ICICI Bank, Kotak Mahindra Bank, YES Bank and India Post Payments Bank also faced similar disruptions.

However, bank officials believe that more or less most banks have exposure to AGS owing to fewer third party service providers in the market. Also, other service providers have begun charging higher fees, as they realise that banks are in a crunch, all three bankers said.

The transition cost would have probably been lesser for banks that moved to other service providers last year, they added.

"Most of the decline what you are looking at is part of the rationalisation which banks have done across. A lot of consolidation has been done across in the industry by public sector banks...that is what which has brought the number of ATMs down," AGS Executive Director Stanley Johnson said.

Public sector banks have been moving out of AGS since September, which lead to a decline in the number of total ATMs by AGS, Executive Director Stanley Johnson had said in a quarterly earnings call on November 4.

On March 11, the company in a media statement said that AGS Transact has migrated around 50% ATMs in its network to the banks and other service provider networks to ensure minimal disruption.

AGS Transact, SBI and Union Bank of India are yet to reply to queries.