According to cops : they did not have securities regulator or bank regulators approval for opening an atm. However , bitcoin is completely unregulated in India so you actually do not need any one’s approval.
It’s not classified as security . Lazy cops saw the advertisement and thought they would make a name for themselves and also send out a message at the same time. No one will dare to open BTC ATM again.
Probable bank angle too: Indian banks are super corrupt. They allow billion dollar scams to go undetected for years, allow rich people to rob state own banks and fail to catch absconders.
To balance the books they charge users for each transaction, like withdrawal or moving and sending money to others is charged by many banks. They retain monopoly of the industry .