DIRECT BENEFIT TRANSFER IN INDIA: A STRATEGY PAPER FOR FINANCIAL INCLUSION
DIRECT BENEFIT TRANSFER:
HOW TO MAKE IT HAPPEN
RURAL DEVELOPMENT DEPARTMENT
GOVERNMENT OF ANDHRA PRADESH
PROJECT REPORT IN PARTIAL FULFILLMENT
ADVANCED PROGRAM IN STRATEGIC
INDIAN INSTITUTE OF MANAGEMENT
NB: The paper is kept in public domain for general good. The contents reflect personal views of
the author and not of any Government or IIMC. Comments and suggestions are welcome by
email. Contents may be used for any legal purpose, with due acknowledgement and no risk to
the author for accuracy, success or failure of implementation.
DIRECT BENEFIT TRANSFER: MEANING:
Transfer of Benefits from Government to the Residents: Subsidies,
Pensions, Scholarships, MGNREGA Wages, etc. to the Beneficiary’s bank
account and payment of cash at their doorstep.
Benefits are credited to beneficiary’s bank account, based on AADHAAR.
Duplicates & ghosts are weeded out from databases of user departments
Cash is paid to the beneficiary at doorstep.
Financial Inclusion: Outreach of banking services to all residents,
including the poorest and those located in remote areas.
DBT: The System:
1. Unique Identification Authority of India-UIDAI: Enrolls citizens and
gives each a 12 digit Unique Identification Number.
2. Central Identities Data Repository-CIDR maintains national repository of
biometric identities of residents enrolled by the UIDAI.
3. National Payments Corporation of India-NPCI maintains Aadhaar
Payment Bridge System and Aadhaar Enabled Payment System,
operates Inter-bank Switch, transacts online with Banks on Core
Banking Solution platform.
4. Banks open accounts for residents, using their UID for KYC (Know Your
Customer) for proof identity and address. Bank links the account
number and UID on APBS mapper.
5. Technology Service Provider: To provide hardware and software services
to banks to facilitate outreach of banking/financial services.
6. Business Correspondent: Private corporate agency, a banking
intermediary to manage outreach operations (management of cash &
7. Customer Service Provider (CSP): a resident villager/ acting as agent of
BC to deliver payments & banking services at village level with the help
of networked hand-held Point of Sale machine called Micro ATM.
8. User Agency: Department/undertaking of Government of India or State
Government or local body intends to deliver benefits to residents having
an electronic database of residents with their UIDs.
9.Resident enrolls with UIDAI, gets UID number, opens account with bank,
accesses benefits/services from Government agencies in his own village
or anywhere he likes.
DBT: The Process:
A. User agency (Government Department) sends a file to their bank
consisting of a list of beneficiaries and benefits containing only three
fields UID number and amount to be credited.
B. Bank debits user agency account and forwards the file to NPCI adding
C. NPCI credits accounts linked to the UIDs. Thus UID is like financial
address of the resident.
D. Resident approaches CSP for payment. CSP accesses account online,
pays cash to customer taking his finger print biometric authentication
on micro ATM; issues transaction print out.
Direct Benefit Transfer: Services delivered
1. Credit of benefits to bank account with UID as financial address.
2. Payment of Cash at village level.
3. Inter-operable across banks and service providers, accessible
4. Basic Banking Services.
5. Deposits: Savings, Recurring, Fixed Deposits
6. Micro advances or overdraft.
7. Remittances across place, bank, person.
8. Micro Insurance.
DBT: MERITS OF THE SYSTEM
1. OUTREACH OF BANKING SERVICES:
A. There are 6 lakh villages in India. They are served by a mere 30000
rural branches of banks.
B. Over 51% of population in India has no access to banking or financial
C. Most of the accounts opened as part of Financial Inclusion Plan over
the last 7 years, are not useful for the poor, as there are not enough
branches or staff to serve them. Business Correspondent System is not
functioning in most of the villages. So there are only accounts and no
transactions for most of the poor.
D. Payments and banking services can now be delivered to the poor in
their own village: robust and reliable system, saving time and money.
E. Aadhaar as KYC (Know Your Customer): proof of identity & address.
2. REDUCTION IN WASTAGE & CORRUPTION:
A. Eliminates duplicate & ghost beneficiaries
B. Detects impersonation, misrepresentation, ineligible beneficiaries, and
C. Huge savings in Government expenditure on welfare schemes:
Potential Business of DBT in Annual Volumes*:
Benefits from Union Government: Rs. 3 lakh crores
Benefits from Governments of States: Rs. 4 lakh crores
Savings from elimination of ghosts, duplicates & ineligible persons: 10% to
Expected Annual Savings: Rs. 140000 crores.
* Research required to collect exact expenditure values.
3. Huge business opportunity for Banks.
A. Annual Volume of DBT Payments: Rs. 7 lakh crores.
Expected Revenue: 2% Service Charge:
Rs. 14000 crores.
B. Basic Banking services under Financial Inclusion Plan: Rs. 4 lakh
Expected Revenue from basic banking & FI services: Rs. 12000 crores.
4. Financial Integration of Rural India:
A. Now financial transactions can flow freely even to the remote areas,
covering the poor and marginalized sections.
B. Aadhaar works as proof of identity and proof of address for the
residents and facilitates instantaneous opening of bank account and
delivery of services.
5. Efficient Government:
A. Better targeting and delivery of services and benefits to the poor.
B. CIDR provides safe storage of resident data and reliable service of
biometric authentication as a public utility.
C. Backbone for hassle free financial services for inclusive growth.
Gold Mine of Opportunity, but no Gold Rush
1. Annual Savings of Rs.140000 crores for Govt.
2. Annual Revenue of Rs.26000 crores for Banks.
3. People are waiting for services. Serving the poor is an attractive
4. The poor deserve financial services and Service must be seen as a
right for inclusive growth.
5. Technology has come of age & robust systems are in place.
6. DBT launched in January 2013, but moving very slowly.
7. UID delivery crossed 25%, 50% in many States, but Banks have not
positioned Micro ATMs. Few takers for grant from UIDAI.
8. SBI Group and nationalized banks are not on board. Banks prefer to
wait & watch.
9. Financial Inclusion Products and services are not rolled out.
Trigger the Gold Rush: A Strategic Approach:
1. Neutralize First-mover disadvantages and create First-mover
1.1. The greatest inhibitor is that a UID is linked to the account of the latest
bank on APB mapper. The first mover loses his customers in no
time to the latest predator. All the time and money spent on
reaching out to customers will be a colossal waste. Therefore,
all banks love to wait and watch. DBT will take ages to roll out in
this paradigm. The new rule can be:
A. The first bank to seed the account and make payment on AEPS retains
the seeding for a period of one year as the default banker.
B. Any other competing bank can open bank account and link it on APB
with their IIN.
C. At the end of one year, which ever bank makes the maximum number
of AEPS payments in the year for the UID, will become the default
banker for the UID. In case of a tie, old bank continues.
D. Any UID based credit on APBS or debit on AEPS will be routed to the
E. User departments will credit benefits by default based on UID.
F. Citizen can access front-end services from any bank or BC in the
2. Policy trails practice:
2.1. Stakeholders are not identified, positioned and facilitated. Their
compensation is not defined. Uncertainty looms large. There is
no business case for anyone.
2.2. Pain Point: Risk of Wrong Authentication by false acceptance: UIDAI
wants Banks to take the risk. Banks have refused and stayed out,
rightly so. UIDAI can create a Fund to cover the risks of
wrong seeding and false acceptance. Risk may be covered upto
Rs.10000/- per transaction, duly charging a risk premium.
2.3. Law is required to cover the new field of biometric enrollments,
storage of data, its use for financial transactions and risk of misuse,
fraud, protection of actions done in good faith, recovery of amounts
credited wrongly, issues of privacy, etc.
2.3. Post Office as Bank: Department of Posts has extensive branch
network and large savings account base, a money order system and
a postal life insurance. They have gained adequate experience in
Andhra Pradesh in payment of MGNREGA Wages and Social Security
Pensions. They need to modernize, come on Core Banking Solution,
obtain a Banking license, recruit and train personnel to take over FI
operations and payments.
2.4. Supply of Micro ATMs:
6 lakh villages need micro ATMs. Sourcing them is a big challenge.
Should a PSU produce them internally?
2.5. Universal Service Obligation: Service as a Right. Banks should be
called on to step in and extend services to unserved areas and
clientele, if they should have to access high value business in urban
areas. Enterprise and innovation in financial inclusion shall outreach
as many banking services as possible under financial inclusion
2.6. There should be no service tax on financial inclusion services for a
period of five or ten years.
3. Appointment of Business Correspondents:
3.1. To learn from the experience:
A. Though B.C. System was initiated by RBI in 2006, their service
charges were not defined. Banks were expected to employ TSP, BC,
CSP and render services under corporate social responsibility or
universal service obligation at nominal charges with little regard for
the cost of service. Remuneration for services and stakes of service
providers were not determined properly. Thus BC system failed to
achieve financial inclusion.
B. Common RFP for Appointment of BCs:
Banks have little or no experience in appointing and managing BCs.
Therefore common RFP was floated for all public sector banks. It
failed to take off, as ridiculously low rates were taken by the
How public sector banks will appoint BCs, procure microATMs and
position them at what terms and in what timelines is THE GREAT
UNCERTAINITY OF THE HOUR.
C. Private Banks and Business Correspondents: On the other hand, the
private sector banks, especially the ICICI Bank and Axis Bank have
demonstrated willingness to take risks and the capability to put in
place a working system for DBT.
4. ANDHRA PRADESH SMART CARD PROJECT of Rural Development
Department of Government of Andhra Pradesh: Visionary
Leadership in Electronic Benefit Transfer for payment of
MGNREGA Wages and Social Security Pensions:
A. All Gram Panchayats in the State are allotted to Banks or post office.
Banks engaged services of business correspondents.
B. Payments in progress in 95% of Villages. Beneficiaries are paid at GP
office, post office or at doorstep.
C. Benefits are directly credited to beneficiary accounts in bank/post
office and paid to beneficiaries.
D. Local SHG Woman or local post office as last mile service delivery
point with a handheld PoS machine/microATM.
E. Biometric authenticated payments of the pre-Aadhaar era.
F. MGNREGA Wages paid once a week and Social Security Pensions paid
once a month.
G. 15 million accounts, Rs.11000 crores since 2007; Rs.4091 crores
during FY 2012-13.
H. AP leads in enrollments and payments on the Aadhaar platform too.
AEPS was launched in East Godavari district on 6.1.2013.
I. AP is gearing to be the first Universal Aadhaar State.
J. Government of Andhra Pradesh pays 2% of the amount disbursed as
commission to smart card banks. This model inspired the APBS-
AEPS also, but there is no clarity for stakeholders. Clear definition
of stakes and their delivery system are required to inspire
K. Many banks and post office participated in AP Smart Card Project
and gained knowledge and skills which can be gainfully adopted
expeditious roll out of DBT on aadhaar platform.
5. Path-breaking work: Support required for success of DBT:
5.1. First-mover Banks (as also States) have to test the system and
initialize it. They do path-breaking work, encountering
resistance to change from primary and secondary stakeholders.
They take responsibility in the front-end for failures of the
back-end and for all system bottlenecks. Delays in roll out of the
entire system and its stabilization result in time and cost over-
6. To facilitate transition: neutralize inhibitors, resolve
6.1. Banks to appoint Business Correspondents
6.2. BC to appoint Customer Service Providers
6.3. Bank/BC to position Micro ATMs & start services.
6.4. Banks to enable inter-operability with other banks.
6.5. Bank/BC to set up Cash management system.
6.6. User Departments to seed their databases.
6.7. Banks to seed their customers with UID and link accounts on APB
6.8. User departments to send APBS payorders.
6.9. Exception Handling Procedures:
2 to 5% of residents may not have the fingerprint quality required
for online authentication. Common Exception handling procedures
need to be incorporated in the rules by the regulator and adopted
by all banks. Adequate safeguards should be provided against
misuse of the facility. Messenger payment as provided in post office
savings account rules may be adopted by banks also. One Time
Password sent by SMS to linked mobile is another alternative.
7. Reward System: Identify Stakeholders and reward the value
There should be a business case for every participant activity and
stakeholder. It should be clearly defined and delivered. It should
be fixed by regulator and be left to contracting by individual banks.
It should meet the costs and also give room for profit. DBT will lead
to mainstreaming financial inclusion as a separate line of business,
calling for special expertise with its own volumes and design of
products and services.
7.1. Sponsored Bank: (easy work: any bank can do it with office
at State/district headquarters): Maintains User department
accounts and initiates APB transactions to credit benefits and shares
feedback file. This is work is relatively simple and is generally
compensated by the float enjoyed by the bank in User department
accounts. If sponsored bank is unduly paid more, banks with
greater clout will rather prefer to lobby for User Department
account, than toil in the heat of the last mile to extend services to
the end customer.
Recommended Remuneration: 0.15% only to cover costs of APBS &
risk fund for wrong seeding losses.
7.2. Beneficiary Bank: one-time effort to acquire customer is critical to the
system: To access the beneficiary and open accounts, collect and
seed the aadhaar numbers in their database and link them on the
APB mapper; maintenance of the accounts on the CBS server with
obligation to extend service as paying bank also.
Recommended Remuneration: 0.25%.
7.3. Paying Bank- CRITICAL LAST MILE SERVICE: To appoint BC, CSP, to
position & maintain micro ATM in the village and make cash
available and render all front-end services at the cutting edge. It is
the hardest part of the work to make timely payments ONE TIME &
EVERY TIME. It is the Proof of the Pudding! Without this service,
benefits will sit on bank server, beneficiary cannot access them.
Recommended Remuneration: Gross: 2.15% (inclusive of
BC/CSP/TSP/ AEPS/Risk Fund 0.4%+0.4%+1%+0.1+0.05%) Net:
7.4. Business Correspondent to appoint and manage CSPs and cash
movement from bank to CSP and back together with attendant
Recommended Remuneration: 0.4%.
7.5. Technology Service Provider: hardware and software services.
Recommended Remuneration: 0.4%.
7.6. Customer Service Provider: Locally resident to extend service at
village level: To hold cash balance and make payments.
Recommended Remuneration: 1%.
7.7. APBS: Aadhaar Payment Bridge System for credit of benefits to
beneficiary accounts: Public Utility on no-profit basis.
Recommended Remuneration: 0.05% for ON US Transaction &
0.10% for OFF US Transaction plus 0.5% for Risk Fund for loss due
to wrong credit/wrong seeding.
7.8. AEPS: Aadhaar Enabled Payment System: Biometric Authentication for
transactions: Public utility on no-profit basis. Recommended
remuneration: 0.15% (0.10 for authentication of payment and
0.05% towards Risk Fund to cover loss due to wrong payment in
7.9. Fund to cover Risks of Loss due to Wrong credit because of wrong
seeding & Loss due to wrong payment due to false acceptance:
0.05% on APBS & 0.05% AEPS.
Total Cost of DBT for User Agency: 2.55%.
(A good bargain for Scheme savings of 10% to 30% by removal of ghosts &
duplicates, gains of time & effort with delivery of benefits at door-
step, financial inclusion and better governance)
7.10. All functionaries (TSP/BC/CSP) should be provided with
special FI Accounts which can be credited with their share of
remuneration instantly or on day-end settlement basis.
7.11. Cash Management: Supply of cash in inter-operable scenario:
BC-CSP should be allowed to draw cash from any bank
branch or ATM to make DBT Payments upto Rs. One lakh per
8. Create Demand Pull:
8.1. No need to wait for the last resident to be enrolled and given aadhaar.
Start service-delivery at village point to persons having aadhaar.
Even at 25% or 50% coverage of the population, operations are
8.2. Service availability will cut across resistance from vested interests
8.3. It will also motivate all remaining residents to enroll for aadhaar, to
share their aadhaar with user departments and banks.
8.4. AP experience shows universal acceptance & satisfaction in terms of
savings in time and money to travel and stand in long queues for
service at the bank branch in a different village, greater visibility
and accountability in electronic payments; delays in payment
tracked, penalized and tackled.
9. Work in Mission Mode:
9.1. Campaign to complete enrolments for AADHAAR.
9.2. Expedite generation, issue & delivery of UIDs.
9.3. Set up Permanent Enrolment Centers for residual enrolments and for
updating existing records.
9.4. Now there is a Mission Director for DBT at the Centre; every State may
have a State Mission Director to lead the roll out locally.
10. If it is so BIG, give it what it takes (WIT):
10.1. To realize the business volume of Rs.11 lakh crore, it takes a lot of
man power, infrastructure, planning and management.
10.2. There is work to do, if Government looks at savings of Rs.140000
crores per annum, if banks want to partake in Rs.26000 crores
revenue per annum.
Udyamenahi siddhyanti kaaryani, na manoradhaihi;
Nahi shuptasya simhsya, pravishanti mukhe mrigaha.
(Only through enterprise are great things accomplished, not by mere desire.
If the lion sleeps, the prey would not walk into his gaping mouth.
10.3. Build on Strengths: Public Sector Banks have long tried to manage
Financial Inclusion without dedicated FI officers and staff.
Obviously they failed. Private Sector Banks with the freedom to hire
additional resources have done much better. All Grameen Banks
have to come on Core Banking Solution and on aadhaar platform
for APBS and AEPS. Extensive rural branch network is the
Strength of public sector banks and regional rural banks. They can
build on it. However, they need to position one FI officer in every
rural branch exclusively to manage the specialty business of
financial inclusion and manage the BC-CSP network offering a whole
range of banking and financial services, linked to the service area
branch. It is a whopping 35000 new rural bank officers, to
recruit and train!
10.4. Service Area Approach: Boon or bane: A case for freedom of
choice to customer:
6 lakh villages in the country are attached to 35000 rural branches
of banks under the service area approach. No services could be
delivered by limited staff manning so few branches for so many
poor people with high volume transactions of low value. Now that
ICT opens up a possibility, the field should be thrown open for
banks to offer services and for customer to choose among them.
Even the private sector banks or whoever is willing to serve, shall
have a level-playing ground.
10.5. The Rights View: Service as a right!
All residents shall have access to banking and financial services
even if they happen/choose to live in rural areas. Urban areas and
rural areas support each other. Now more than ever, service shall
reach out to them, because technology makes it possible and
10.6. Broadbase the system and make it universal and ubiquitous:
The services can be made accessible to residents through multiple
agents across banks, multiple establishments, multiple channels
like biometric ATMs, through Rupay Cards, mobile banking,
etc. It can cover as many services as possible. Rural biometric
ATMs with solar modules may be positioned on site at all rural
branches. Rupay debit cards may be issued to all customers. No
risk of delayed payment, no need to compensate for delayed
payments; if it is visualized, it can be realized!
10.7. Jobs for a million functionaries:
There is need for at least one Customer Service Providers with a
handheld micro-ATM to render last mile service in each of the 6
lakh villages; bigger villages may require more CSPs. We shall add
a few lakhs to cover the urban poor: over a million customer
service providers would be required in the country for DBT and for
11. The Great Leadership Question:
Have we not men with us royal,
Men the masters of things!
Now more than ever, there is political will; there is a robust system
and delivery mechanism built on aadhaar platform and an awareness
of its value. Hope India will make it!
It is a “eleven trillion rupee per annum” question: all real, nothing
imaginary about it!
Let Policy, Planning and Management join hands.
A brave new financial revolution is in the making!
The importance of adopting right strategy cannot be
Leadership sets the goals and Strategy shows the way!
STRATEGY IS A CRITICAL SUCCESS FACTOR.
IT IS AT THE HEART OF ENTERPRISE TO ENSURE SUCCESS.
Let us do it!