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Business News/ Politics / Policy/  Cash transfers: Govt seeks adequate banking facilities
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Cash transfers: Govt seeks adequate banking facilities

Govt asks banks to ensure there is at least one bank branch or business correspondent in every gram panchayat

People getting enrolled under the Aadhaar programme in New Delhi. The beneficiary’s bank account will be directly credited with the money using Aadhaar-based identification. Photo: Ramesh Pathania/Mint (Ramesh Pathania/Mint)Premium
People getting enrolled under the Aadhaar programme in New Delhi. The beneficiary’s bank account will be directly credited with the money using Aadhaar-based identification. Photo: Ramesh Pathania/Mint
(Ramesh Pathania/Mint)

New Delhi: To ensure adequate banking coverage even in less populated states in the run-up to the rollout of the direct cash transfer scheme, the finance ministry has asked banks to ensure that there is at least one bank branch or business agent in every village council area.

In a 20 December circular, the ministry directed banks to use a mix of business correspondents and common service centres to ensure banking is available to the beneficiary.

India plans to roll out direct cash transfers to beneficiaries of welfare schemes in 43 districts starting 1 January.

According to the plan, the beneficiary’s bank account will be directly credited with the money using Aadhaar-based identification. But for the successful implementation of the scheme, it is necessary that all beneficiaries have a bank account, preferably linked to Aadhaar, the government’s unique identity programme.

In the circular, the finance ministry has given deadlines for adhering to these guidelines both for the 43 districts and for the rest of the country.

“There are a lot of states where the population is thinly distributed and the villages are not covered as part of the financial inclusion drive by banks. One example is Himachal Pradesh," said an official with a public sector bank, who declined to be named. “The finance ministry’s directive is to ensure banks cover all such areas to make direct cash transfers successful."

As part of the government’s financial inclusion programme, around 74,000 habitations with more than 2,000 people were covered by banking services till 31 March. In the current fiscal, this is now being extended to areas with a population of 1,000 or more in northeastern states and 1,600 and above elsewhere.

The finance ministry has also asked banks to use common service centres in places where there are no banking agents or where their performance is not satisfactory, especially for opening accounts. As per data available with the Reserve Bank of India, villages covered through business correspondents constituted almost 80% of the total in the financial inclusion plan.

Common service centres, an initiative of the department of information technology, are a chain of Internet-enabled kiosks that provide online services to villagers such as birth and death certificates, and utility bill payments.

Earlier this month, this initiative and 12 public sector banks signed an agreement on the the former acting as agents for the banks. There are around 95,000 centres that will help implement the electronic cash transfer programme.

“The problem is that having a banking correspondent in an area doesn’t necessarily mean that everyone in the area has a bank account. It just means that they have access. For direct cash transfers, this is not sufficient," said an official of a Mumbai-based state-run bank.

“For direct cash transfers to be successful, it is important to ensure that there is width and depth in banking correspondent coverage," said Anirban Roy, managing director of Seed Financial Services. The government should have a remuneration and incentive structure for the agents, he said.

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Published: 26 Dec 2012, 08:58 PM IST
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