Mumbai: Public sector banks, which account for about 70% of India’s banking industry, are rushing to open branches in far-flung corners of the country to ensure smooth operation of the government’s plan to directly transfer cash to beneficiaries of welfare schemes.
The government intends to transfer cash for 29 of 42 welfare schemes into beneficiary bank accounts in 51 districts across 16 states. The electronic cash transfers will be based on the 12-digit unique identification number or Aadhaar.
At this point it seems 51 districts are unlikely to be covered in the first phase but sensing that the scheme could be expanded to cover the country by 2014, ahead of the next general election, account-opening exercise has picked up in earnest.
“We have taken it very seriously. Not only banks but the district collectors’ offices are taking part in the process and villagers are told to open an account at the first opportunity,” said B.A. Prabhakar, chairman and managing director at Andhra Bank .
Rural branches have been allocated targets to include all families in a village and bankers in those branches are working overtime, he said.
The top management of all public sector banks, including the chiefs in some cases, have started addressing people in the 51 districts and pushing their employees to meet the target.
A. Krishna Kumar, managing director of State Bank of India, said his bank is busy opening as many accounts as possible in the rural areas.
“There is lot of work to be done from 1 January. There is huge burden, huge responsibility that is going to fall on your shoulders. It is banks that have to make the cash transfer scheme successful. I know you can do it,” finance minister P. Chidambaram said at a function of Central Bank of India in Delhi on Friday, PTI reported.
Till now, the Reserve Bank of India’s mandate was to financially include all villages with over 2,000 inhabitants to open bank accounts for financial inclusion by 2012 and the industry has achieved it. Now, the government is expected to extend this scheme to every village in the country, bankers said.
However, this exercise has a cost for banks. Typically, all such accounts are no-frill, zero-balance accounts. A bank incurs at least Rs.200 to open such an account and about half of such accounts have remained inactive. This means the banks are incurring maintenance cost for these accounts even when they are not getting any resource in the form of deposits.
When the first such drive was taken in 2009, the government had indicated that the banks would be given a subsidy of Rs.140 for each account opened. However, there has been no progress on that front.
Banks reached out to 73,000 villages, opening some 50 million accounts by 2012, without any incentive from the government.
Now the direct cash transfer scheme has come as a major expenditure for banks.
“The expense is not going to be small. It will shoot up as we go along hit our profitability,” said a banker who declined to be named. “Financial inclusion is welcome, but do we have the infrastructure to open accounts for the entire nation when this scheme spreads?”
Bankers say without any incentive from the government, this exercise may not be feasible. “The problem is, even if we open the accounts, how many of them will be actively used? It is easy to close a non-active account in any centre, but nobody will allow you to close a no-frills account if it is not serviced. It is a huge load in the system just to service the accounts,” said another banker who too requested anonymity.
Bankers also fear that if this scheme is expanded nationwide, the model of financial inclusion through business correspondents, or third-party agents working on behalf of banks, may not work.
“There is no way that business correspondents model will work effectively. We have to rapidly scale up our operations in the rural areas by opening more brick and mortar branches, whether they are viable and not,” said one of the two unnamed bankers.
An offshoot of this exercise is large-scale hiring in rural pockets where banks are expanding their branch network. “That will be the real financial inclusion, whether direct cash transfers work or not,” said chairman of a Mumbai-based bank, who spoke on condition that neither he nor his bank be named.