Financial inclusion has been high on the Modi-led Government’s agenda. Apart from mandating banks to open more accounts in rural areas, the Centre is also pitching to make financial inclusion initiatives more viable this time around. For one, the government’s plan of routing subsidies through the Jan Dhan account has helped address the dormancy issue in rural accounts to some extent. Two, the launch of the government’s three social security schemes last month — two insurance schemes (Pradhan Mantri Jeevan Jyoti Bima Yojana, and Pradhan Mantri Suraksha Bima Yojana), and a pension scheme (Atal Pension Yojana) — serve the broader purpose of financial inclusion, besides providing affordable social security.

By launching these schemes, the government is working towards making the business correspondent (BC) model — which is a low-cost channel — more viable, by increasing the business at the BC outlets, according to industry players. Banks have opened many rural accounts in the past few years. Recent tally puts the number of accounts opened under the Jan Dhan Scheme at 15 crore.

More accounts However, opening of such rural accounts under Jan Dhan or otherwise, will first have to be viable. For that to happen, a couple of things need to fall in place. One, banks will have to raise the deposit level in these accounts, which to some extent has been addressed by the government routing subsidies through these accounts.

According to the latest data on Jan Dhan, 53 per cent of the accounts had zero balance as on May 27. The trend has improved substantially in the last couple of months. In November, nearly 75 per cent of the accounts had zero balance.

Two, the number of transactions in the accounts need to be increased to ensure viability of these accounts. This means that banks will have to leverage these accounts to provide a variety of financial services, credit being one, to bring down the operating expenses for rural accounts. To achieve this, banks are exploring other avenues such as the BC model, which are low-cost channels, when compared to bank branches. BCs accounted for more than 85 per cent of the total banking outlets in villages in 2013-14.

Many challenges However, the BC model is facing many challenges, according to Sunil Kulkarni, Deputy Managing Director, Oxigen Services, India’s leading payments solutions provider. One, the returns do not justify the investment. “Both the BC and the card industry are trying to provide infrastructure at the retail end —in case of the BC it is cash in cash out, account opening and remittances and in case of the merchant payment industry it is debit and credit card transactions. What is finally required is one terminal that can provide all these. Micro ATM, the terminal which can provide all these, costs ₹20,000, which is very high. We will be providing this terminal to rural and urban India at a significantly lower cost soon,” he says.

The quantum of traffic in the BC model does not justify the investment.

“So, the standalone BC model is not viable. That is why the government is trying to support this business by affordable life and medical insurance and pension schemes, which are increasing the footfalls in these outlets to improve earnings at BC agents’ outlets,” he adds.

The second challenge that the BCs face is the absence of broadband. This restricts accessibility in rural areas and traditional PC/tablet-based solutions would not work leading to demand of cost effective Micro ATM that can do financial transactions like cash-in cash-out, debit card transaction and also convenience services like recharges/bill payments etc. “There are 6.5 lakh villages and banking is available in only 2 lakh villages, where there is either a bank branch, BC or ATM. So, the rest do not have access to banking," says Kulkarni.

The reason for low BC transactions is just this. Since there is no payment point at the village and the customer has to still travel about 20 km to get his cash in or cash out, he still keeps his money under the pillow or spends it. “The moment you have a payment point next door using micro ATM with biometric or Rupay card then the person will try to save money and deposit even small sums. Hence, a payments bank business model based on small value transactions will work better because it will set up cash withdrawal points,” says Kulkarni.