Summary of Recommendations
1. The Committee examined at length the advantages and disadvantages
of three models of Electronic Benefit Transfer (EBT), namely, Bank-branch Model,
Bank-led Model and Non-bank Model and preferred Bank-led model over the other
two models of disbursement of government benefits. Such a model can operate in
sync with the strategy of 100 percent financial inclusion.
2.
The Committee, felt that, although the Service Area Approach has well laid down
systems for monitoring and review, and the banks and State Governments are familiar
with the modalities of implementation, in view of the easier implementation and
monitoring feasibility of technology-based EBT systems, one–district-one-bank
approach may be adopted. The places where one-district-multiple-banks approach
is already working satisfactorily, the same may continue. Government to identify
the bank in consultation with Reserve Bank to operationalise one–district-one-bank
approach.
3. Delivery of Government
benefits at the place of habitation of the beneficiary should be the ultimate
desirable goal. A two-stage approach may be adopted. Initially disbursements can
be made at Gram Panchayat level through the bank or its business correspondents.
Subsequently, disbursement can move to individual villages.
4.
Feasibility of e-governance kiosk operating as business correspondent under the
existing guidelines may be considered after they are well spread out and become
viable entities in rural areas and offer payment services as extended arms of
banks under the provisions of extant guidelines of DBOD on business correspondents.
5.
There is a need to employ means of de-duplication system in order to ensure that
beneficiaries are uniquely identified and any attempt to impersonate or to receive
multiple benefits under the same scheme is prevented.
6.
Payment information should flow electronically from end to end so that a data
base is created for generating various types of reports are required by the State
Governments.
7. The project of up-scaling the pilot to
the entire state of Andhra Pradesh should be completed by December 2008
8.
State and District Level Steering Committees may be set up for the periodic monitoring
the implementation of the project. The State Level Committee may be headed by
the Chief Secretary, Government of Andhra Pradesh and the Principal Secretary,
Rural Development would be the Convenor. The District Level Steering Committee
may be coordinated by the bank that has been allotted the district for EBT implementation.
Chapter-1
Introduction
Background
1.1 Of late, a number of State Governments
have introduced social welfare programmes which involve payment of cash or kind
to the beneficiaries. Payments are made either through Government offices or through
banks. Money orders are also made where neither the agency bank nor Government
offices have a presence. The experiment being made by Government of Andhra Pradesh
in six districts since April 2007 for making the payment, using biometric (use
of finger-prints) smart card-based solution with the assistance of business correspondents
of banks, has received a lot of attention. While this model of technology-based
delivery of service has been a success, Government of Andhra Pradesh has expressed
apprehensions on the speed of implementation of the Project by depending only
on the bank-led service delivery model. Suggestions have been made by the Andhra
Pradesh Government for adopting a Public-Private Partnership Model to speed up
the implementation process. On the other hand, many State Governments have also
expressed the desire to replicate the existing model of Andhra Pradesh and have
sought Reserve Bank’s opinion in the matter. Therefore, there was a need for analyzing
the issues involved and suggest an appropriate workable framework of Electronic
Benefit Transfer (EBT) system that can be considered for adoption by all State
Governments including Andhra Pradesh. Accordingly, a High Powered Committee headed
by Dr.R.B.Barman, Executive Director of Reserve Bank of India was appointed by
the Reserve Bank. The composition of the Committee and the Terms and Reference
are in the Annex.
Methodology
1.2
The Committee had two meetings. In the first meeting, the terms of reference were
discussed broadly and a Public-Private Partnership Model as suggested by Government
of Andhra Pradesh was discussed in detail. Considering that most of the members,
other than the members from Government of Andhra Pradesh and National Institute
of Smart Governance, indicated that the proposal requires an in-depth study, two
Sub-Committees were constituted – one to examine the business issues and the other
to examine the technology issues. In the second meeting, the Reports of both the
Sub-Committees were discussed and broad recommendations were formulated. Subsequently,
the members exchanged notes and drafts and the Report was finalised. While Chapter-2
describes the importance of a people friendly social security benefits, Chapter-3
presents various models of distribution of benefits and challenges involved. Chapter-4
lists the recommendations of the Committee with Chapter-5 presenting an implementation
Plan for the State of Andhra Pradesh which can be replicated in other centres.
Acknowledgements
1.3
The Committee placed on record contributions made by Shri R. Gandhi, Regional
Director, New Delhi Office for coordinating the work of the Sub-Committee on Technology
Issues and Smt. Suma Varma, Regional Director, Hyderabad Office for coordinating
the work of the Sub-Committee on Business Issues. The Committee also had the benefit
of receiving commercial banks’ perspectives on the subject from Shri K.S. Bajwa,
General Manager, Punjab National Bank, Shri S. Sekar, DGM from State Bank of India,
and Shri Rajiv Sabharwal, General Manager from ICICI Bank. The Committee thanks
them for their contributions. Thanks are also to Smt. Shantikumari, IAS, Development
Commissioner and Smt. Anita Ramachandran, Director - both from the Department
of Rural Development, Government of Andhra Pradesh - who actively participated
in the meetings. The Committee also thanks Shri K.N. Krishnamurthy, General Manager
and Shri Ashok Yadav, Asst. General Manager for supporting the Committee in the
Secretarial work.
Chapter 2
Importance
of an Electronic Benefit Transfer (EBT) System
2.1 Providing social
security continues to remain one of the major objectives of Governments including
those in developed countries. Its importance is even more pronounced in developing
countries. In order to bring about improvement in the living conditions of people
belonging to vulnerable sections of society, having little means of earning with
no savings available for their old age, Governments at various levels have been
adopting welfare schemes to secure and raise the standard of living of citizens
in the areas of public health, insurance, education, child welfare and care of
senior citizens, etc. In India, the Central Government and Governments in the
States have been designing several schemes in this direction like social security
pension payment, National Rural Employment Guarantee Scheme (NREGS), insurance
scheme for all persons living below poverty line, etc.
2.2
Such welfare scheme payments are being made, at present, either in kind or in
cash or through subsidies, indirectly, like the PDS. All the cash payments are
mostly being made through the Government Departments either directly by the concerned
departments or agencies or through the assistance of Gram Panchayats. However,
in view of the inadequacies in the infrastructure, large area to be covered, insufficient
trained manpower, etc., most of the time the payments are delayed. Also there
are often complaints of misuse and leakages in the system.
2.3
Timely disbursal of the benefits is an essential requirement of any welfare scheme
and ensuring that no leakages occur would also be an essential element. It was
in this context that the Government of Andhra Pradesh came out with a plan to
make use of smart card-based electronic payment scheme, using the financial inclusion
scheme devised by Reserve Bank of India. Biometric identification was also incorporated
in the smart card technology which aided in eliminating most of the leakages that
occurred in the system.
2.4 This
scheme of Andhra Pradesh has received a lot of media attention – partly because
of the unique nature of the Scheme and partly because of timely disbursal of Government
benefits which, hitherto was a challenge.
Chapter-3
Models
of Electronic Benefit Transfer (EBT) and Challenges
3.1
There are three possible models of EBT – Bank-branch Model, Bank-led Model and
Non-bank Model. While, the Bank-branch Model involves operating the system only
through network of bank branches, other two models involve non-banks acting either
as agents of banks or acting on their own. The model presently being practiced
in Warangal District of Andhra Pradesh for EBT is an example of Bank-led Model.
On the other hand, the proposal mooted by Government of Andhra Pradesh with public-private
partnership is an example of Non-bank Model. The advantages and disadvantages
of each of these models and challenges involved in adopting the specific model
are discussed hereunder.
Bank-branch Model
3.2.
Bank-branch model of benefit transfer refers to the system of disbursing delivery
of service only through the banking channel, using the bank branches as the service
delivery point. The network of branches of scheduled commercial banks (including
Regional Rural Banks) as on June 30, 2007 stood at 71,781. Of these, 30,633 are
in rural and 16,310 are in semi-urban areas. A simple benchmark employed to assess
the degree of reach of financial services is the number of deposit accounts (current
and savings) held as a ratio to adult population. In the Indian context, the ratio
of deposit accounts as on March 31, 2004 to total adult population as per 2001
census was only 59 per cent. The ratio varied across States, ranging from 89 per
cent in Kerala to 21 per cent in Nagaland. The spread of banking facilities is,
thus, uneven in the country, with a substantial proportion of the households,
especially in rural areas, still outside the coverage of the formal banking system.
3.3The
Reserve Bank has taken a number of measures for enhanced access to banking services
including the following:
- Lead Bank Scheme and Service
Area Approach are the early innovations for inclusive banking.
- Banks
have been urged to make available a basic banking ‘no frills’ account either with
‘nil’ or very low minimum balances as well as charges that would make such accounts
accessible to vast sections of the population. Regional Rural Banks have also
been advised to allow limited overdraft facilities in ‘no frills’ accounts, without
any collateral.
- Banks are required to make available
all printed material used by retail customers in the concerned regional language.
- All
State Level Bankers’ Committee (SLBC) convener banks have been advised to initiate
action for identifying at least one district in their State/Union Territory for,
100 per cent financial inclusion. SLBC has now adopted the targeted approach
for achieving 100% financial inclusion in their respective States. In Andhra Pradesh,
they have resolved to achieve this by June 2008.
- Appreciating
the challenges involves in operating in rural areas, the Reserve Bank permitted
banks to employ business correspondents (BCs) to enable customers' easier access
to banking services in rural and semi-urban areas. Business correspondents can
be NGOs/MFIs set up under Societies/ Trusts Act, Entities registered as Self Help
Groups (SHG) to function as BCs of banks.
- The
‘know your customer’ (KYC) procedure for opening ‘no frills’ accounts has been
simplified so that people from low-income groups do not face problems in opening
new accounts.
3.4 However,
covering the entire adult population under the banking framework is a major challenge.
The average distance to a bank branch in the rural areas is still very high and
it is well recognised that it would be an impracticable approach to aim delivering
banking services only through the branch network of banks. Only this realisation
has led to the introduction of Business Correspondent (BC) model for implementation.
Bank-led
Model
3.5. The Bank-led Model refers to provision
of banking service at the bank branches as well as through their Business Correspondents
(BCs). Appreciating the challenges involved in operating only through Bank-branch
Model, the Reserve Bank permitted banks to employ BCs to ensure easier access
to banking services in rural and semi-urban areas. BC can be NGOs/MFIs set up
under Societies/Trusts Act, Societies registered as Self Help Groups (SHG). In
a Bank-led Model, one bank would be identified for a specific area such as a block
or a district, although other banks may be functioning in the command area.
3.6
Banks have been advised to work towards 100 percent financial inclusion, employing
the services of these eligible entities. Banks have also been advised to use the
State Level Bankers' Committee to monitor the progress in this regard. Adopting
the above strategy, several districts in certain States and Union Territories
have already achieved the goal and efforts are being made by other States also
to achieve it. If 100% financial inclusion could be reached by all the States,
then distribution of Government benefit transfer would easily be achievable through
this model.
3.7 EBT model adopted
in six districts of Andhra Pradesh falls under the above model. The scheme operates
on the financial inclusion platform created by banks through their business correspondents.
Banks have been allotted specific Mandals for bringing the hitherto unbanked population
under the banking system. Since banks do not have branches at remote location,
the services of business correspondents (BCs) are utilized. These BCs organize
enrolment camps at village level and collect information of the 'would be account
holders' as also their biometric identification. After due diligence, as applicable
for "no frills" accounts, banks open the accounts in their books. The
concerned Government Department communicates the list of social security benefits
to ensure that all intended beneficiaries in a specific locality are brought under
inclusive banking. Every account holder is issued a smart card, which contains
the basic data of the account holder along with the biometric data and photograph.
The business correspondents have been provided hand held devices which facilitates
connecting to bank's database and carry out cash-in and cash-out function on behalf
of the bank. A day or two before the due date of payment, Government gives a cheque
to the bank along with the details of the beneficiaries. . The bank credits the
accounts of the beneficiaries enabling the business correspondent to access the
account balance through a mobile access device and disburse cash at gram panchayat
level.
3.8 However, the model is
not free from challenges – the biggest challenge being multiplicity of banks and
multiplicity of correspondents in one area making the operation non-viable for
any business correspondent. The major grievance of the Government of Andhra Pradesh
is that the process is very slow and, even after one year of implementation of
the pilot, up-scaling the EBT model to six districts has not been completed. Each
bank having to undergo an elaborate process of selection of business correspondent
for a specific district/ area is extremely time-consuming. However, this Project
being the first of its kind in the country, involved a learning process for all
the participants viz. Government, Banks, Business Correspondents and the Beneficiaries.
Considering the same, the Project can be considered as progressing satisfactorily
in creating confidence that the technology is robust to support banking outreach
with the help of the business correspondents.
Non-bank Model
or PPP model
3.8 Non-bank Model of EBT refers to a
scenario where the payment is made through a channel without involving the banks.
Making payments through Money order is also a non-banking channel; but this channel
is not very effective from the stand point of financial inclusion. A Non-bank
Model would typically involve the Government department entrusting the responsibility
to a non-banking institution to deliver service on their behalf.
3.9
The Government of Andhra Pradesh was planning to build an EBT framework on public-private
partnership where the Government would identify non-banking institution(s) which
would take the responsibility of distribution of public benefits. The salient
features of the PPP service delivery is expected as under:
- Private
investment in building the technological and information infrastructure
- Exploiting
the private sector efficiency for service delivery, technology adoption and expansion
of coverage
- Strategic control of information
and citizens interest with the Govt.
- The smart
cards to be issued to the citizens would be Government owned and would be used
as a medium to access only Government benefits – cash or kind through Government
authorized outlets
- Cards would be closed loop
cards and the benefits transferred to the card accounts would not attract any
interest
- Banking system can leverage on this
platform, if so required at a later date
The
advantages, as envisaged by Govt. of Andhra Pradesh, are as under :
- Rapid
development of infrastructure compared to Bank-led Model adopted for six districts
and total financial inclusion accelerated
- Challenges
of inter-operability between multiple banks and multiple vendors as at present
would be easily be addressed
- Efficiency in
delivery
- Convergence of other public services
- Reduction
in cost
3.10 While the
Committee took note of all these advantages, the following challenges were also
taken in to account :
a) The existing
framework of RBI/banks undertaking Government transactions directly or through
agents/correspondents has statutory backing as enshrined in Section 6 of Banking
Regulation Act and Section 21(A) and Section 45 of Reserve Bank of India Act.
Even if it is presumed that this model may bring efficiency and will deliver the
desired results with speed, the process of amending various statutes or putting
in place required regulations to create the enabling environment itself will defeat
the very purpose for which the PPP model is being proposed.
b)
At this stage of payment system development, electronic transfer of funds from
one bank account to another provides regulatory comfort. The EBT framework under
PPP model may involve transfer of funds to the card accounts maintained with the
identified non-bank service provider. Thus, it would be treated as a payment system
outside the banking system and regulatory overload may not make the system viable.
c) Inter-operability of the different
cards is required to the extent that different card holders holding accounts with
different banks should be able to remit funds from one card account to another.
This has to be achieved by prescribing suitable standards of outgoing messages
which can be switched. A separate Committee set-up by IBA has been looking into
issues relating to Standards.
d) The multi-vendor arrangement
and competition has brought about innovations. Therefore, multi-vendor scenario
itself is not a disadvantage, if standards are prescribed.
e)
Banks have demonstrated their commitment for financial inclusion by participating
in the upscaling of pilot in six districts. The apparent ‘slow’ progress
is because of the newness of the project and the procedural formalities necessary
for appointment of BC. Banks and their BC have learnt a lot during the last one
year and it is now a question of pushing the momentum forward. It may not be appropriate
to treat the banking system as "slow" only based on the initial period
of project implementation.
f) Any private initiative is
expected to succeed when profitability is an important objective. It is not clear
as to how a private initiative would reduce cost while being profitable.
g)
Last, but very important - third party handling Government funds involves reputational
risk for both the Government and the Reserve Bank in case of leakage of funds,
if any, through fraudulent means at the service provider level.
3.11
The Committee also analysed the possibility of using the kiosks as part time e-governance
initiative by several State Governments for reaching the Government benefits to
the beneficiaries. As the kiosks set up by the various State Governments with
different names eg., e-mitra, e-seva Kendra, etc., are mainly for utility bill
payments, obtaining various information/ certificate from Government Departments,
as also as these have not reached the semi-urban and rural areas, it may not be
possible to use kiosks for disbursement of Government benefit transfer in rural
/ semi-urban areas as yet. Even in metros and cities, their growth and stability
is not uniform. Thus kiosks can be considered as a viable option if, and only
if, they are well spread in rural areas and offers payment services as extended
arms of banks under the provisions of guidelines of DBOD on BC.
Chapter-4
Recommendations
Bank-led
Model may generally be preferred
4.1 Of the three
models examined, the Committee felt that Bank-led, smart card-based Model as being
implemented in six districts of Andhra Pradesh may be adopted for disbursement
of benefits to beneficiaries at or near to place of their habitation. The existing
guidelines on business correspondents provides an enabling environment for banks
to reach out to unbanked population and the Committee is of the view that such
an approach to EBT would achieving the goal of 100 percent financial inclusion
faster. EBT service should ideally be a part of the larger objective of financial
inclusion.
One-bank-one-district
approach to be adopted
4.2. Although the Bank-led
Model can have two variants (i) service area approach and (ii) lead bank approach,
the Committee preferred to adopt one- district-one-bank approach. The Committee,
felt that although the Service Area Approach has well laid down systems for monitoring
and review, and the banks and State Governments are familiar with the modalities
of implementation, there would be a challenge of co-ordination with several banks
and several business correspondents. Besides, operating in a small service area
may not be cost effective for any bank or the business correspondents. The Government,
in consultation with RBI may identify banks for each district based on a number
of factors such as the number of branches of the bank, association in handling
government business, willingness and ability of the bank to deliver such EBT service
etc. Due weightage may be given to the banks for flow of other government business
as incentive for faster implementation. Allocation of district would, however,
be independent of the Lead Bank Scheme. After identification of a bank for a particular
district, if the bank does not respond fully to the needs of EBT on business considerations
or on account of infrastructural bottlenecks, the Government may, in consultation
with the Reserve Bank, identify another willing bank.
Delivery
of Service at the Village Level
4.3 As regards
reaching the Government benefits at the place of habitation of the beneficiary,
the Committee deliberated, at length on the issues involved in putting in place
such a system, including availability of infrastructure such as power, communication,
trained personnel, proper BCs, etc. Delivery of Government benefits at the place
of habitation of the beneficiary should be the ultimate desirable goal. To achieve
this, issues relating to road connectivity, availability of power, availability
of reliable telecommunication links, trained and adequate man power, security
scenario of the area, type of terrain, etc., have to be addressed. The availability
of adequate number of technology service providers (having capacity to deliver
the large number of hand-held machines, mobiles, smart cards, etc.), selection
of BCs – in conformity with our guidelines – by banks will be a major challenge.
Therefore, a two-stage approach may be adopted. Initially disbursements can be
made at Gram Panchayat through the bank or it's BC. Subsequently, disbursement
can move to individual villages.
Exploring
the Feasibility of e-governance kiosk operating as business correspondent under
the existing guidelines
4.4
The Committee felt that using the e-governance kiosks as a delivery channel is
good idea. However, taking into account that the kiosks are not well spread out
ad and financial viability is not proven, the Committee is of the view that developments
on this experiment may be closely watched. There can be experimentation on EBT
through kiosks provided the operators of the kiosks conform to RBI’s guidelines
on business correspondents of banks.
Smart Card-biometric Identification
System
4.5 Smart card biometric identification
system should be adopted to uniquely identify the beneficiary and to have the
necessary technology tool to provide host of services other than EBT. Smart card
based system would facilitate loading additional functionalities on the card and
the card itself would act like an electronic pass book. The IBA Committee examining
the issues relating to standardization of IT based financial inclusion is also
examining technology standards for smart card based biometric identification system.
The standards as to be developed by this IBA committee may be applicable for EBT
system.
De-duplication check
at district level
4.6 One issue in this regard was
raised by Government that with the adoption of technology, there was a need to
employ means of de-duplication system in order to ensure that beneficiaries are
uniquely identified and any attempt to impersonate or to receive multiple benefits
under the same scheme is prevented ab-initio. Considering that people have more
than one means of establishing their identity (such as ration card, passport,
etc.,) there is scope for duplicate payments to the same beneficiaries. The biometric
identification system would help prevent such leakages. However, this would require
employment of large servers and software which would be a complex and expensive
process. Therefore, the Committee is of the view that the exercise may be carried
out by the Government at district level based on the data captured at the time
of acquiring the accounts by the banks and their BC..
Flow
of payment information to be electronic from end to end
4.7
The benefit fund will flow from Government to the banks periodically as bulk credits;
Government will also provide banks with details of the beneficiaries and the bank
branches where they maintain their accounts. As regards, the flow of Government
funds to banks to specific accounts of beneficiaries, the technology already exists
viz. electronic modes such as ECS, NEFT and RTGS, and the same could be used.
Banks will pass on the credits to the beneficiaries’ accounts on receipt of funds.
Banks will provide access to the account holders for operations at their nearest
point to residence/habitation using the services of BC. Banks will provide Points-of-Access
devices which will be linked to bank servers, using mobile/ radio/ terrestrial
connectivity.
As regards updating
the accounts, it was felt that banks could deploy online, near online or off-line
methods that is best suited to their systems. As regards reaching the customers
and extending them operations of accounts for cash-in and cash-out with least
inconvenience, it was decided that the existing BC system, as approved by DBOD,
could be deployed.
Developing
appropriate Management Information Systems (MIS)
4.8
The Committee felt that the State Governments would have the necessary information
to develop MIS for analytical purposes. This could, however, be supplemented by
collecting the requisite information on payments effected by banks or such other
information as captured in the payment message from the Government, so that the
Governments would get the necessary feedback to satisfy its needs from the Public
expenditure perspective.
Chapter-5
Implementation
Plan for Andhra Pradesh
Pilot Project in
Andhra Pradesh to cover the whole state by December 2008
5.1
The project of up-scaling the pilot to all the Mandals in 6 districts in Andhra
Pradesh should be completed by June 2008 with the modalities already worked out
under Service Area Approach. Banks which are not in a position to appoint their
correspondents for the Service Areas allotted to them may indicate their position
within one month of submission of the Report so that the State Government can
allot the area to some other bank willing to operate. For the remaining districts
in the state, one-district-one-bank approach may be adopted and the process of
identification of bank by the State Government, in consultation with RBI, should
be completed within one month of submission of this Report and the implementation
completed by December 2008.
State and District Level Steering Committees
5.2 For periodic monitoring of the progress
of implementation, a State Level Steering Committee may be set up with the Chief
Secretary of the Government of Andhra Pradesh as the Chairperson and Principal
Secretary Rural Development as the Convener with Regional Director, RBI, Hyderabad
and Commissioner, Rural Development, Government of Andhra Pradesh as members.
Other Members may be drawn from the major participating banks at the level of
Chief General Manager or General Manager. The Steering Committee may meet at least
once a month till December 2008. Besides, District Level Steering Committees may
be set up. The bank entrusted with EBT responsibility for a district may be the
coordinator for the District Level Steering Committee. Other aspects of the District
level committees such as the composition and periodicity of review meetings may
be decided by the State Level Steering Committee.
Annex
Committee
on Suggesting a Framework for Electronic Benefit Transfer
Composition
The Committee members were as follows: