The government is planning to provide some financial support to the commercial banks in order to encourage them to enter the rural un-banked areas. Since technology is seen as the mainstay of the financial inclusion project unveiled by finance minister Pranab Mukherjee in the recent Budget, the finance ministry is working on a proposal to compensate the capital cost spent by banks in using technological equipment in providing basic banking services in the un-banked areas.
As an added incentive, the government would also pay commission to the banks on every direct transfer of payment to beneficiaries of the National Rural Employment Guarantee Scheme. This would help in curtailing leakage. The government has already tasked a committee headed by Nandan Nilekani to work out a scheme of direct kerosene subsidy transfer.
A framework of financial incentives towards achieving financial inclusion is expected to be worked out by March, an official said. Banks have urged the government to compensate them for opening no-frills accounts, which add to the cost of the banks without much commensurate benefits. Mukherjee has promised to bring in 72,000 un-banked rural areas under the banking network by 2012. Only a little more than a third of India’s population have access to banking services at present. In other words, only 3,500 villages have brick and mortar branches. There could be 100-odd brick and mortar branches under the financial inclusion, while majority of the 72,000 habitations will have banking access through kiosks, mobile banks, Micro-ATMs and business correspondents.
Leading banks have already started reaching out to unbanked rural population through cost-effective means like business correspondents (BCs). Punjab National Bank, which has been asked to cover 4600 villages, has already appointed 1500 BCs, while State Bank of India is establishing banking presence in over 12,000 habitations. Some banks are also giving a micro overdraft of Rs 500 while opening no-frills account in order to encourage people to join the banking network.
The government’s proposal to compensate capital cost borne by banks and to give commission on direct subsidy transfer are expected to make the project financial viable for the financial institutions. While the regional rural bank will establish banking presence in 23,000 habitations, the remaining 50,000 branches will be opened by the scheduled commercial banks.
