State Bank of India [Get Quote], the country's largest lender, is on an outsourcing overdrive. After outsourcing the back-office work in foreign offices, the bank has now decided to rope in external agencies to set up automated teller machines to save on capital expenditure and reduce the rollout time. It plans to initially outsource 500 ATMs to vendors, including original equipment manufacturers.

SBI intends to take the ATMs tally from the current 8,600 to 25,000 by March 2010. This entails large capital expenditure and management time, a senior executive said.

"If the bank can provide better customer services (ATM facilities) without buying machines, why not? It is possible to save on capital expenditure," the executive added. He did not spell out the extent of savings.

The bank is not, however, abandoning the task of setting up ATMs on its own.

While private banks have aggressively outsourced the establishment and management of ATMs, the number of public sector banks doing the same is still small. The employee unions in public sector banks have, in recent weeks, protested against outsourcing moves.

Of the 500 ATMs that will be set up by SBI through the outsourced route, 200 will be established in the metros, 150 in urban locations, 100 in semi-urban areas and remaining 50 in the hinterland. The bank did not specify whether these ATMs would be located at the branches or offsite.

SBI is looking at the outsourcing initiative on an experimental basis. The bidders should not have been blacklisted by any public sector banks for deficiency in services in the last three years. The vendor would have to install and maintain the ATMs, providing uninterrupted power supply with backup facilities and security. The service provider will also have to ensure network connectivity with the bank's switch at Navi Mumbai.

The bank will arrange for license from the Reserve Bank of India and the usage of its own switch and cash.

Meanwhile, the bank has joined the National Financial Switch, managed by the Hyderabad-based Institute for Development and Research in Banking Technology. This will broad-base the availability of off-site channels for banking transactions.