SBI mulling transaction-based fee for no-frills accounts

In order to make the operation of no-frills accounts opened under the financial inclusion plan of the government feasible, State Bank of India (SBI) is considering the imposition of a charge on every transaction by account-holders.

The bank is confident that a nominal charge, which can be either a percentage of the amount transacted or a fixed amount, will not dissuade people from operating no-frills accounts, a senior SBI official involved in the state-run lender's financial inclusion initiative told PTI here on strict condition of anonymity.

"The question on our minds is -- how do we make the operations of the model feasible? We can recover the Rs 20,000 required for setting up infrastructure in a village through a kiosk or palm-held device by opening around 100 accounts and charging Rs 200 as account-opening fees," the official said.

Paying a small amount like Rs 3 for a transaction would be preferable to travelling 20 kilometres to reach a branch, he said, clarifying that the bank, however, has not finalised any plan yet.

"You cannot have a model under which the financial inclusion roll-out is subsidised, it needs to be sustainable," he added.

The bank has to take care of recurring expenses like maintaining back-end systems and paying the business correspondent (BC) operating on its behalf at the village level, he said.

SBI plans to embark upon a massive public awareness campaign to heighten public interest in the financial inclusion initiative and assuage any concerns.

However, when asked if such a move will face any regulatory hurdles, the official said, "Though the regulators have given us all the freedom, it is very difficult to say (what their reaction will be)."

The financial inclusion initiative of the government involves establishing last-mile banking infrastructure at the village level to cover the entire population under the formal banking system.

In his Budget speech this year, Finance Minister Pranab Mukherjee had said that all 60,000 unbanked villages in the country having a population of over 2,000 will be covered by the formal banking system by March, 2012.

Subsequently, the unbanked villages were carved up between the various public sector banks for mandatory coverage.

Considering the investment required on traditional brick -and-mortar branches, banks are outsourcing the operations to non-banking financial companies, appointing them as business correspondents (BC) to look after the operations.