New Delhi: Indian banks will be paid a transaction fee of 1% of the value for every payment made to the beneficiaries of direct cash transfers, a move aimed at providing a boost to the scheme, bankers and a finance ministry official said.
“The fee of 1% will be divided among various stakeholders like banks, business correspondents and the national payments corporation of India,” said the finance ministry official, who did not want to be identified. The amount is substantially lower than the fee suggested by a task force headed by Nandan Nilekani, chief of the Unique Identification Authority of India (UIDAI), which submitted its report in February last year.
The task force had recommended that banks be paid a transaction fee of 3.14% with a cap of Rs.20 per transaction for each government payment.
India plans to eventually implement cash transfers of all subsidies and social welfare payments directly into the bank account of beneficiaries.
Under this, the beneficiaries are identified based on the Aadhaar numbers issued by the UIDAI, based on a person’s biometric details such as fingerprints and iris scans. In a step towards that, the government started a pilot direct cash transfers programme on 1 January this year in 20 districts for 26 schemes.
In the first phase, direct benefit transfer was restricted to pensions and scholarships, excluding other programmes such as the national rural jobs guarantee scheme and food subsidies. The government plans to eventually move these big-ticket schemes to the direct benefit transfer platform.
The government is in the process of finalizing the list of districts where the second phase of the rollout of direct benefit transfers will happen.
“While the banks will be paid 1%, the amount that will be paid to the business correspondents will depend on the understanding between the bank and the business correspondent,” the official said.
Business correspondents are intermediaries who help lenders provide their services in rural and urban areas where there is no bank presence.
Under the cash transfer programme, the government department which administers a particular welfare scheme has to give the name of the beneficiary along with his or her account and Aadhaar number to a bank. The bank sends these details to the National Payment Corporation of India, or NPCI. NPCI then credits the bank in which the beneficiary has an account. The beneficiary can then withdraw the money directly from the bank, or from an automated teller machine or with the help of business correspondents.
“If the account is maintained in one bank but the money is delivered through the business correspondent of another bank, then the service fee will have to be divided depending on the proportion of funds transferred through the inter-operable business correspondent network,” said the chief of a public sector bank, who did not want to be identified.
“For banks, it’s not only about just transferring the funds. Banks have to open accounts, ensure that the accounts can be accessed and the holders have access to other financial instruments,” he said.
There are costs associated with firms employing banking correspondents and agents need to be compensated adequately, according to Manish Khera, chief executive of FINO PayTech Ltd, a business correspondent.
“A better incentive structure could be one of the aspects to make banking correspondents financially viable. It is important to take into account the per-customer number,” Khera said. “We believe the government should consider the impact the sector has in taking banking to large unbanked and un-serviced masses and, accordingly, come out with an incentive structure that is a win-win for all stakeholders.”
The current practice of paying the agents 1.75% is inadequate given the volume and the work involved, he said. “We hope the final decision is taken considering all news factors and in consultation with all stakeholders,” Khera said.