Government plans micro ATMs for transfer of cash to poor

The government is likely to shoot down the Department of Financial Services' (DFS) plan to appoint common banking correspondent (BC) companies for transferring cash to poor people and replace it with a country-wide network of 'micro ATMs', as it seeks to finalise the last mile payment architecture for cash transfers.

In a meeting on Monday evening, Rural Development Minister Jairam Ramesh, UIDAI chairman Nandan Nilekani, and Planning Commission officials met Finance Minister P Chidambaram to share their reservations about the common banking correspondent model. An official who attended the meeting told ET that it was agreed in-principle to junk this model but a final decision will be taken by the Finance Minister.

In a SMS to ET, Ramesh confirmed the development. "The DFS model is now history. Women SHG, Ashas, anganwadi workers, post offices, teachers, kirana stores, fertiliser shops, etc, can now be BCs," he said. Banking correspondents are individuals who work as banks agents in areas that don't have branches. A banking correspondent company manages these agents.

The UPA government has made cash transfers an important plank of its 2014 election campaign, as it plans to make a wide range of payments from pensions to scholarships to kerosene subsidy directly to the bank accounts of beneficiaries, eliminating leakages and avenues for corruption. It is estimated that once the system is fully rolled out from mid-2014, cash transfers to the tune of Rs 3,00,000 crore will happen annually.
Government plans micro ATMs for transfer of cash to poor
While the DFS, which falls within the finance ministry, has been promoting the common banking correspondent company model, a committee on micro-payments headed by Nilekani has proposed that hand held machines be given to individual banking correspondents. These handheld machines will be connected to all public sector banks and will allow the targeted beneficiaries to access their accounts from anywhere.

In a presentation made at the Monday meeting, Nilekani said that with each Micro-ATM or hand held-machine costing about Rs 15,000, the cost of a ten-million-terminal- network will work out to about Rs 1,500 crore. Add to that a margin of 3.14%, as recommended by his committee on micropayments, and the total cost of effecting cash transfers of around Rs 3,00,000 crore will work out to Rs 5,332 crore.

The critical difference between the DFS model and the 'Micro ATM' approach is that under the first model, the country was divided into 20 clusters, and there was going to be a common banking correspondent company servicing customers of all state-owned banks in each cluster.

This was different from the previous system where every bank had its own banking correspondents. Further, with each BC company having its own proprietary technology, villagers could not access their account from PoS terminals of any BC company. In that sense, each BC company had a captive customer base.

The DFS plan was an attempt to fix that problem -- by appointing one BC for the whole cluster, concerns about the lack of "interoperatability" would be addressed. At the same time, it was felt that the resulting economies of scale would make the BC model viable.

But bankers and rural finance professionals expressed apprehension that the banking correspondent company could become an all-powerful intermediary.



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