RANCHHODPURA, India, Jan 21 (Reuters) - Working out of a
tiny rented room furnished with a wooden table, small biometric
authentication machine and shelf stacked with passbooks, Ganesh
Dangi is a one-man bank for a village of 650 people in
northwestern India's desert state of Rajasthan.
A business correspondent, or local representative, for State
Bank of Bikaner and Jaipur (SBBJ) in Ranchhodpura village, 40 km
(25 miles) east of Udaipur city, Dangi is racing to sign up
villagers to new "no frills" plans to meet a government target
that every family in the district should have a bank account.
New Delhi plans to directly transfer cash payments for
subsidies into these accounts, a move aimed at tackling graft in
India's creaky, corruption-ridden public distribution system.
If successful, the initiative could also bring modern
banking to the doorstep of rural India, a goal towards which
progress has so far been fitful despite mandatory targets set by
the government and Reserve Bank of India.
"Nearly 80 farmers in the village have taken crop loans.
They have more confidence in banks now," says Dangi, who earns
1,500 rupees ($30) a month plus commissions. "They now know
banks are not cheats to swallow up their money."
The target is a tough one in a country where only 35 percent
of people had formal bank accounts, versus the global average of
50 percent, according to a financial inclusion survey by World
Bank in 2011. Nearly two-thirds of India's 1.2 billion
population still live in rural areas.
Currently being piloted in 20 districts, including three in
Rajasthan, the programme is expected to go nationwide in phases
over the next year.
The government plans to transfer 3.2 trillion rupees ($58
billion) to beneficiaries of its subsidy schemes and welfare
programmes, according to newspaper reports.
It will pay the wages for more than 50 million workers in a
rural job scheme, pensions for 20 million senior citizens and
about 5 million education scholarships directly to bank accounts
linked to a unique identification number.
It is also likely to free farmers from the clutches of
money-lenders who charge annual interest of 24-50 percent,
giving them access to institutional finance.
Shiva Kumar, managing director of SBBJ, a subsidiary of
government-owned State Bank of India, says the
initiative will bring "financial freedom" to India's vast rural
hinterland, home to about 800 million people.
"Lot more money will come into the banking system. It can
boost prosperity in the villages and that will get more business
to banks," he said.
Banks fear early pain - the move could burden them with 250
rupees to 500 rupees ($4.5-$9) of additional costs per account
annually, while profits may remain elusive for at least 2 years.
Still, they see a huge opportunity even if only a quarter of
these new accounts were to turn into regular customers,
demanding loans, mutual funds and other products.
The programme could help banks and business correspondents
earn about 40 billion rupees ($735 million) as fee income,
Mumbai-based brokerage Anand Rathi, said in a note this month.
GAME OF PATIENCE
Banks are currently losing money in most of their rural
operations, hit by highs costs, poor connectivity and low
savings in areas where average per capita income is around
16,000 rupees, compared with 44,000 rupees in urban areas.
"It's a long, patient game," said Anil Jaggia, chief
information officer at HDFC Bank, India's No.2 private sector
lender, adding it will not boost revenues immediately.
"Over time if people get into serious banking habits then
this whole initiative may get to breakeven and make some
In the meantime, the new accounts are likely to put pressure
on banks' existing infrastructure and add to costs, officials
said. Industry experts say banks need to look at low-cost and
innovative models of doing business in India's villages.
"Banks have not done much in this segment so far," said
Manish Khera, CEO of FINO Paytech, a micro-banking technology
and business correspondent services provider.
FINO provides business correspondents such as Dangi to
banks, trains them and also equips them with biometric devices.
"The investment is done by the business correspondent firms.
As far as the villages are concerned, the most economical way
for banks to continue is to do it through a BC," Khera said.
According to rough estimates from banks, every transaction
done at a branch costs around 50 rupees while those done at ATMs
cost 15 rupees. But banks are not keen on installing ATMs in
villages given the costs involved in having 24-hours
electricity, surveillance and communication facilities.
Concern that loans to rural customers could go bad is also
making lenders jittery. For SBI, 9 percent of its farm loans had
turned bad in the year to March 2012.
In one rural branch in Udaipur, SBBJ had bad loans of around
13 percent. This compares with an average 3 percent for the
banking system across India.
Prami Devi Meghval, 24, who is five months pregnant, opened
an account with ICICI Bank, India's No. 2 lender, this
month through FINO in Udaipur, to benefit from the subsidies
earmarked for expectant mothers by state and central government.
"Everyone says government will give us money. I don't know
how much the government will pay," said Meghval, who did not get
the money when she was pregnant the last time.
"I never tried to open an account earlier. We don't have
money to keep in bank accounts."
TC Songara, manager of the SBI branch in Udaipur, a popular
tourist destination famous for its lakes, says his branch has
opened 2,000 new accounts in the two months to December compared
to a monthly average of 100 new customers and is now facing a
shortage of passbooks.
But he is worried that many new customers like Meghval might
use the bank only to take out their cash payments.
"The challenge is to ensure they start using banking
products," he said. "If they only come to the branch to withdraw
subsidies it is not going to help us."
($1 = 54.4575 Indian rupees)
(Editing by Alex Richardson)