GOVT MAY COMPENSATE BANKS ON NO-FRILLS ACCOUNTS EXPENSES

The Finance Ministry is considering a proposal to compensate around “50-60 per cent” of the expenses that banks incur on opening and maintaining each ‘no-frills account', sources in the banking industry told Business Line.

Such an incentive may encourage banks to expedite the financial inclusion process, they said.

All banks were asked by the Reserve Bank of India in 2005 to offer no-frills accounts at their branches. These are accounts with nil or low minimum balances, limited facilities and nominal charges that encourage people from economically-weak background to open such accounts.

Cost incurred

On an average, each bank incurs a total cost of about Rs 250 for opening and maintaining such accounts in the opening year and lesser in the subsequent years or if the minimum balance in the account is substantial, the sources said.

It is estimated that banks have opened over 50 million ‘no frills accounts' and these have an outstanding balance of over Rs 5,400 crore.

The Government is keen to ensure that around 73,000 habitations with population more than 2,000 are covered by March 2012 under the financial inclusion process, including ‘no frill accounts' for the common man.

Branchless banking

After finding that the efforts made by the customers, including their time and costs, to reach the nearest branch and operate the account were preventing many of them from either opening such accounts or keeping them active, PSBs have also been looking at branchless banking to facilitate in easier accessibility of these accounts.

Eyes linking to mobile telephony services

In this regard, the Government is in talks with the Unique Identification Authority of India (UIDAI) and banks to see how to synchronise opening of bank accounts with the UID cards and expand the financial inclusion process.

Talks are also on to look at linking this process with mobile telephony services to leverage the deep penetration of mobile phones in the country.

According to a research by the Skoch Development Foundation, a New-Delhi based think-tank, out of the total 25.1 million no-frills accounts opened over a two-year period (April 1, 2007 to May 30, 2009), only 11 per cent are found to be operational.

Source: http://www.thehindubusinessline.com/2010/10/04/stories/2010100451920300.htm