IT IS midmorning in Kurla East, a suburb of Mumbai, and Jeejabai is opening her first bank account. She stands at the counter of a busy kiosk run by Geosansar, one of the so-called “business correspondents” that act as local agents for India’s big banks. Jeejabai works as a housemaid earning 2,500 rupees ($40) a month. She wants to save for her children now that her husband has found work as a watchman. The Geosansar clerk scans her biometric identity card, takes her fingerprints on a device linked to his laptop and types in her details. He issues a stamped-and-dated slip with Jeejabai’s new account number on it. It all takes just ten minutes.
The bustle at the kiosk in Kurla East is in response to the government’s drive to provide banking to the poor. It is looking for a direct and reliable means to support their incomes, which would allow it to do away with costly and distorting subsidies. The prime minister, Narendra Modi, launched the initiative at the end of August, setting a target of 75m new accounts by Republic Day, January 26th.
The scheme’s initial goal has been surpassed: 120m accounts have been opened. Arun Jaitley, the finance minister, has claimed that almost every household in India now has access to banking. But a previous financial-inclusion drive in 2010 petered out when many accounts were left dormant. Some experts fear a repeat unless banks are allowed to make a decent profit serving their new customers.
Optimists maintain that there will be far fewer unused accounts this time. Although two-thirds of the new accounts are empty, Mr Jaitley says 330 billion rupees in transfer payments and wages from a rural employment scheme will soon flow into them. Account-holders will get the promised fringe benefits, such as free accident insurance, only if they use their ATM cards at least every 45 days. The buzz has persuaded people such as Jeejabai that banking is not just for the rich. Establishing a habit of saving will take time, but having somewhere to stash money is a start, says Nish Kotecha, the founder of Geosansar.
There will be bumps along the way. The initial success of this banking drive owes a lot to the sway the government has over public-sector banks, which opened all but 4% of the new accounts. Much of the work of signing up new customers was in turn outsourced to business correspondents and their agents, which operate in rural areas where bank branches are scarce. Banks have been told to cap the charge for withdrawals related to transfer payments at 1%, up to a maximum of 10 rupees. But research suggests a charge of 2-3% is required to cover the cost of managing cash. Agents grumble that they bear the cost of getting banknotes to remote areas but take only a share of the (insufficient) fee, which is often paid late. The costs incurred cut into the capital that business correspondents need to expand their networks and services.
A big worry is that in rural areas or poor urban districts it will not be worth banking agents’ while to hold enough cash to meet withdrawals during busy periods, such as when rural wages are paid. That could sully the whole idea of banking for new customers. The need for branches to hold big hoards of banknotes should diminish as mobile banking develops and people carry out fewer transactions in cash. The central bank has extended the deadline for applications for a new sort of bank licence, designed to appeal to mobile-phone companies. For now, though, cash is king and running the royal court is expensive.