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Subsidy boost for banks

india Updated: Jan 19, 2011 01:55 IST
Mahua Venkatesh
Mahua Venkatesh
Hindustan Times
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The government is willing to bear a part of the cost for banks to enable millions of Indians in far-flung and remote areas to open no-frill accounts—a move aimed at goading banks to venture into commercially unprofitable areas.

Government sources, who did not wish to be identified, said the government could fund banks to make up for the costs of maintaining “no-frills” accounts, most of which have “zero balance” for many months.

“The proposal is being looked into and the quantum of compensation is yet to be decided,” an official source who did not wish to be identified told Hindustan Times .

Mukherjee in a pre-budget meeting with representatives of banks and financial institutions on Tuesday stressed the need to expand the scope of financial inclusion covering the entire gamut of financial services pertaining to savings, credit and insurance.

Banks have added about one crore fresh accounts with zero balance in the current financial year to enable payment of wages to beneficiaries of the national rural employment guarantee scheme (NREGS).

“All NREGA payments will have to be delivered only through bank accounts. Operating bank accounts with zero balance involves a cost for the banks. Government will subsidise the banks for these accounts,” said an official.

The proposal recommended by an inter-ministerial group (IMG) was worked out earlier this month. About 4.41 crore households benefit every year from the job guarantee scheme covering 626 districts.

In urban India 9,400 people are covered by one branch, but in semi-urban and rural India, one branch covers 15,900 people. There are about around 78,000 bank branches in India.

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