The government launched a modified cash transfer scheme for 23.3 million households in 54 districts of 11 states on November 15 to curb diversion of subsidised cooking gas. Bank accounts linked to Aadhaar, a biometric identification system, received over Rs 10 crore (Rs 100 million) in 700,000 transactions in the first four days.
State-owned banks are seeking a fee for crediting the cooking gas subsidy in the accounts of beneficiaries as the government gears up for a nationwide launch of cash transfers.
The banks argue since the scale of credits is unforeseen, they will have to bear an unknown cost of servicing these accounts.
Some banks are seeking a two per cent commission on credit for the Rs 568 subsidy a cylinder.
The finance ministry, however, says once the cooking gas subsidy starts flowing into accounts, banks will have enough floating capital to meet their costs.
“Discussions are on between the department of expenditure and the department of financial services,” said a senior official with knowledge of the talks between the two sections in the finance ministry.
“The department of financial services says banks are incurring a cost, while the department of expenditure is refuting the argument.
The advance credit into the accounts is huge and should be enough to cover costs,” he added.
The government launched a modified cash transfer scheme for 23.3 million households in 54 districts of 11 states on November 15 to curb diversion of subsidised cooking gas.
Bank accounts linked to Aadhaar, a biometric identification system, received over Rs 10 crore (Rs 100 million) in 700,000 transactions in the first four days.
A senior finance ministry official said the expenditure department would not allocate extra money in the current financial year unless the government raised supplementary demands for grants in the winter session of Parliament.
The official said government departments had been told to save money from original Budget allocations in order to meet the fiscal deficit target.
A committee headed by Nandan Nilekani, former head of the Aadhaar programme, had recommended a fee of 3.14 per cent to banking correspondents for each cash transfer.
The finance ministry had, after much dialogue, agreed to pay a commission to bank agents providing last-mile connectivity in remote areas, although the fee was lower than Nilekani’s recommendation.
Public sector banks, especially the large ones, want a two per cent commission on each credit.
They argue transactions by banking correspondents are difficult to track and the commission should be paid to them.
“The government expects to save Rs 20,000 crore (Rs 200 billion) of the gas subsidy through this project.
Can it not give Rs 1,000 crore (Rs 10 billion) to banks?” asked an executive with a large public sector bank.
He pointed out banks were spending money on opening new accounts and servicing existing ones.
Another government official said: “The committee made its recommendations based on transactions, but if a commission is paid on each credit, there will be little incentive for banks to make sure beneficiaries have access to banking.”
The issue is gridlocked, the last discussions took place a week ago.
An earlier cash transfer scheme by the United Progressive Alliance government had to be stopped after the Supreme Court ruled Aadhaar could not be made a condition for welfare payments.
In its new avatar, consumers who do not have Aadhaar numbers will receive cash in their bank accounts, but they must shift to the Aadhaar-based system when they get their identity numbers.
“We have started receiving requests from consumers for linking Aadhaar numbers to bank accounts.
The bank has already linked 83 per cent of accounts,” said a senior executive with Karnataka Bank, which is linking accounts in Mysore, one of the 54 districts where the cash transfer scheme is rolling.
He said the bank was rushing to clear the backlog since April, when no new requests came in for linking bank accounts.
To ensure a consumer has cash to pay for the first cylinder at the market price, a permanent advance will be paid as soon as he books gas after joining the scheme.
Also consumers have three months to switch over to the Aadhaar system, during which they will receive gas cylinders at subsidised prices. o
SUBSIDY STATUS
- Banks argue since the scale of credits is unforeseen, they will have to bear an unknown cost of servicing these accounts
- Some are seeking two per cent commission on credit for Rs 568 subsidy a cylinder
- However, finance ministry says once the cooking gas subsidy starts flowing into accounts, banks will have enough floating capital to meet their costs
- Discussions are on between the department of expenditure and the department of financial services
