Govt. may compensate banks on no-frills accounts expenses

The Finance Ministry is considering a proposal to compensate around " 50-60 per cent" of the expenses that banks incur on opening and maintaining each " no-frills account", sources in the banking industry said. Such an incentive may encourage banks to expedite the financial inclusion process,they said.
All banks were asked by the Reserve Bank of India in 2005 to offer no-frills accounts at their branches. These are accounts with nil or low minimum balances, limited facilities and nominal charges that encourage people from economically- weak background to open such accounts.
On an average, each bank incurs a total cost of about Rs. 250 for opening and maintaining such accounts in the opening year and lesser in the subsequent years or if the minimum balance in the account is substantial, the sources said. It is estimated that banks have opened over 50 million " no frills accounts" and these have an outstanding balance of over Rs.5400 crore.(BL 04.10.2010)