An identity is just the first link in the cash-transfer chain. Everyone also need bank accounts that are easily accessed. A host of competing initiatives are trying to get these links up. Each is facing teething troubles. Sixty years after independence, India continues to be appallingly underbanked.
According to the RBI, only 5.5% of 650,000 villages have bank branches. Further, says Skoch, a financial-inclusion consultancy, only 40% Indians have a savings account. Since 2005, the RBI has been prodding banks to open no-frill accounts (NFAs), which don't have a minimum-balance requirement. But they are not viable.
"It costs us Rs 200 to open an account and every transaction at a branch costs Rs 20. So, the average account balance needs to be Rs 2,000-3,000 (to be viable)," says a senior banker at SBI, not wanting to be identified. "It was Rs 133 in June." This is bound to increase as cash transfers gain acceptance and the bank account becomes the centrepiece of a villager's economic life. For example, the average balance in SBI NFAs in 2008 was Rs 22. The journey from Rs 133 to Rs 2,000 is a long one, which Rs 3,00,000 crore of cash transfers can shorten. For now, reluctant to bear the burden of costs, banks are outsourcing.
OUTSOURCING TO BCS
Instead of setting up branches, banks are outsourcing the NFAs to business correspondent (BC) firms. A BC firm has a team of agents that goes to account holders, and helps them deposit or withdraw cash using biometric cards, over handheld consoles (like FINO, A Little World, Bartronics) or through mobile phones (Eko). Between April 2010 and March 2011, RBI data shows banks expanded their coverage to 43,337 villages. Of these, only 525 villages were through branches; 42,506 were through BCs, and 306 through other modes like ATMs.
This is how cash transfers are being envisaged. The UIDAI is working on the Aadhaar Payment Bridge-a database that knows which UID number is linked to which bank account. Once a ministry enters a payment and the beneficiary's Aadhaar, the system routes the payment to the designated bank account. At the village level, the BC agent will take the beneficiary's fingerprints on his handheld terminal.
This data travels back to a UIDAI authentication system- called Aadhaar Enabled Payment System-for immediate verification. Once the identity is confirmed, the beneficiary completes the transaction through the agent. UIDAI is currently working on both these systems. Questions pockmark the entire chain. One, not all bank branches and servers, especially of regional rural banks, are linked to the banking system. The RBI has told banks to do this by the end of this month.
THE PROBLEM WITH BCS
Two, most banks have asked their BCs to not just do transactions, but also house their NFAs. "Only 30 banks have enterprise licenses for banking software. The others pay per user," says a manager in UIDAI's financialinclusion team, not wanting to be identified. So, loading NFAs on to their core banking system is a cost without adequate returns
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