The Reserve Bank of India’s (RBI’s) no-frills savings accounts initiative is likely to handle around Rs 1 lakh crore once all state governments route their social sector payments through this system.
As social security programme payments were made through the no-frills accounts, it was estimated that around Rs 1 lakh crore would come under the banking system, said KR Ananda, regional director, RBI.
He said Andhra Pradesh, Karnataka and Gujarat were the few states that routed social payments through the system, for which the state governments pay 2 per cent commission to banks.
RBI Executive Director Deepak Mohanty said, “Some state governments are showing reluctance in routing social payments through banks, but eventually it will happen.” He said this was due to “uneven financial inclusion”. The central bank has asked the banking industry to work out a plan, including use of information technology, to address this issue. He was speaking on the sidelines of a seminar here.
RBI had earlier said that it was targeting social sector payments, including those related to the rural job scheme, pension, fertiliser subsidy and state government salaries, to increase penetration of banking services.
“This will also arrest leakages and address fake currency issues,” said Mohanty.
He said RBI’s management, including governor and deputy governors, is visiting select areas, along with district administrations and banks representatives, to see the ground reality.
“Banks are opening the accounts, after which it is operational or not is the key, which RBI wants to ensure,” said Mohanty.
He said capacity was the biggest challenge for banks to execute the no-frills initiative. “Our target is to take banking facilities to 6,000 villages with a population of 2,000 people by 2011 through the business correspondent (BC) model through use of smart cards and other technologies.”
To address this issue, the banking regulator has asked banks to work out a plan which will take banking services to the doorsteps of customers, including use of ICT technology and local representatives. According to Mohanty, collateral-free loans up to Rs 50,000 can be obtained by a no-frills account holder, another incentive to make the accounts active.
According to the RBI 2009 report, only 30,000 population centres out of 600,000 have commercial bank branches; less than 50 per cent of the population has bank accounts and only 10 per cent have life insurance. This is where the opportunity lies, says RBI.
Indian banks, especially those in the public sector, have made substantial efforts to tap the country’s rural population. But expanding through branches has been a costly endeavour. Out of 50 public sector and private sector banks, 26 appointed BCs, through which eight million no-frills accounts were opened till March 31, 2009. Using BCs is gaining popularity, with the RBI recently adding six more types of correspondents, including shop owners and public call centre operators.
Brazil has added over 15 million rural accounts through this model.