India has about 600,000 villages but only 74,000 of those are banked, a difficult situation the government has to deal with as it plans to roll out direct cash transfers of benefits and subsidies from tommorow.
Although finance minister P Chidambaram today brought down the number of districts where direct cash transfers will be introduced initially to 20 from 43 previously, and the number of schemes down to seven from 34, banks will be key for cash transfers scheme, based on the Aadhaar platform, to be successful.
As a result, the government is working at full throttle to provide basic banking facilities in every nook and corner. It has already started tapping the unbanked parts through bank branches, banking correspondents and common service centres (CSCs). This year, 45,000 more agents could be added to the existing force of about 65,000 banking correspondents.
The country today has about 98,000 bank branches, of which about 60,000 belong to public sector banks. Covering all 600,000 villages with a bank branch won’t be feasible.
Therefore, the government wants to boost its network of ATMs from 1.3 trillion at present to 1.63 trillion by the end of next financial year.
“The beneficiaries should be able to easily withdraw the money. ATMs can very well serve that purpose. Cost of transaction at ATMs is much less compared to a branch,” said a finance ministry official. The cost incurred by a bank per transaction at a branch is Rs 40-50, whereas it is Rs 15-20 at an ATM.
More, the government has begun mapping gram panchayats to provide banking services in remote parts of the country. It has asked banks to have at least one bank branch or business correspondent for every village or group of villages with 1,000 to 1,500 households. CSCs have been asked to be ready in terms of equipments, connectivity, biometric device, card reader and printer latest by the end of this month. New CSCs will be set up in areas where neither a banking correspondent nor a functional CSC is available.
To ensure Aadhaar beneficiaries are not turned away by banks because they are not expected to bring much in terms of business, the government is willing to incentivise banks by paying a transaction fee. A business model is being worked out to help these financial institutions recoup transaction costs.
Officials, however, claim banking is not the biggest challenge in rolling out the direct cash transfer scheme. Broadband connectivity could be a bigger issue. A state chief minister also agreed there were problems in providing last-mile connectivity.