The government’s financial inclusion mission, likely to be announced by Prime Minister Narendra Modi in his Independence Day speech on Friday, will heavily rely on technology and have financial literacy, insurance, pension and credit built into the programme – these components were missing in the earlier financial inclusion programme.
The new plan was approved by the Cabinet last week. As many as 75 million households that do not have access to banking services will be covered and at least one bank account opened for each household, against the earlier proposal of two.
According to the latest Census figures, 58 per cent of Indian households have access to banking facilities. The government was earlier targeting 100 per cent coverage but that might be difficult to achieve, given the last-mile connectivity issues. Banking access in areas with connectivity and infra constraints will be covered in the second phase, likely to be introduced around the Independence Day next year.
“Wherever it is possible to open two accounts, we will do it. About 50,000 villages are in forest or hilly areas. We will have to find alternative solutions for those place. Telecom companies will expand to these areas with mobile facility,” a finance ministry official, asking not to be named, told Business Standard.
Finance Minister Arun Jaitley will launch a facility to allow mobile banking on all kinds of mobile handsets, including feature phones that do not support internet or banking applications. The USSD (unstructured supplementary service data) technology, which works in a way similar to short messaging service (SMS) will facilitate this.
The first phase of the programme, comprising universal access to banking facilities, basic bank accounts with zero balance, RuPay debit card and financial literacy, will have to be completed in a year’s time. After Modi has made the announcement on August 15, account-opening camps will be launched from August 28.
The second phase (August 2015-2018) will include creation of a credit-guarantee fund for overdraft in basic banking accounts, micro insurance and unorganised sector pension schemes like Swavalamban.
The ministry official said an in-built accident insurance cover of Rs 1 lakh, death insurance schemes and an overdraft with Aadhaar facility of Rs 5,000 would act as incentives for households to open bank accounts. The overdraft facility, though, will not be given at the time of opening an account; it will take six months.
“We are taking them towards some economic activity. Focus will be on online accounts – unlike earlier, not on offline ones,” the official added.
Since branchless banking in the form of business correspondents is to be further expanded, a minimum remuneration for these correspondents has been fixed at Rs 5,000. In the earlier campaign, there were no guidelines for remuneration of these individuals but they earned an average Rs 2,000-3,000 per month. The earlier programme could not take off because the correspondents were working on different technological platforms. We want interoperability,” the official added. “There will be lot more emphasis on fixed-point business correspondents. Postal Service staff and public distribution shops will be included as correspondents.”
Microfinance institutions and non-banking financial companies (NBFCs), which are now eligible to operate as business correspondents, are likely to play a key role in the Modi government’s grand financial inclusion vision. Companies like Muthoot Fincorp, which operate in the microfinance space, see the correspondent model as an additional revenue stream.
“Our microfinance business has a customer base of close to one million. We can straightaway contribute opening of a significant portion of the targeted accounts,” said Sadaf Sayeed, chief operating officer (microfinance), Muthoot Fincorp.
To incentivise banks, which had expressed concern that managing these accounts would increase their administrative costs, the government will transfer cash subsidies to the bank accounts of beneficiaries. Subsidies for kerosene, cooking gas, fertiliser, food, state-run schemes, wages, pension and many other areas will be transferred directly. These low-cost deposits will help improve Casa (current account, savings account ratio) of banks. The government will also pay two per cent commission to banks on the money flowing to the accounts of beneficiaries.
“Aadhaar will happen side by side. At present, about 700 million people have Aadhaar. Of them, 270 million have bank accounts but only 70 million were covered in the previous campaign. In this round, we will link with bank accounts all Aadhaar numbers that were left out earlier,” the official said.