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Report of the Committee on Suggesting a Framework for Electronic Benefit Transfer


April 15, 2008

The Deputy Governor
Reserve Bank of India


Report of the Committee on Suggesting a Framework for Electronic Benefit Transfer

We place below the Report of the captioned Committee




( V.S. Das )

( K. Raju )

( T. Theethan)

( Prabal Sen )

(R. Gandhi )

(G. Padmanabhan)

(Kaza Sudhakar)

(B.P. Vijayendra)

( Suma Varma )

( Mahabaleswar Hegde)

( Surekha Marandi )

( A.P. Hota )
Member Secretary

Importance of an Electronic Benefit Transfer (EBT) System

Chapter - III

Models of Electronic Benefit Transfer (EBT) and Challenges
Implementation Plan for Andhra Pradesh


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.




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.


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.


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.


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.



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.


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.


Committee on Suggesting a Framework for Electronic Benefit Transfer


The Committee members were as follows:

Shri. R.B. Barman, Executive Director, RBI


Shri. V.S. Das, Executive Director, RBI


Shri. K. Raju, Principal Secretary, Govt. of AP


Shri. T.Theethan, AG, Allahabad


Shri. Prabal Sen, PCGM, CO, RBI


Shri. R. Gandhi, Regional Director, RBI, New Delhi


Shri. G. Padmanabhan, CGM-in-Charge, DIT, CO, RBI


Shri. Kaza Sudhakar, CGM, CSD, CO, RBI


Shri. B.P. Vijayendra, Regional Director, RBI, Jaipur


Smt. Suma Varma, Regional Director, RBI, Hyderabad


Shri. Mahabaleswar Hegde, NISG


Smt. Surekha Marandi, GM, RPCD, CO, RBI


Shri. A.P. Hota, CGM, DPSS, CO, RBI

Member Secretary

Terms of Reference of the Committee

The following were the Terms of Reference:

a. To examine whether Government benefits like Social Security Pension, Employment Guarantee Payments, etc., should be routed only through banking system and only in electronic form ( till cash withdrawal by the beneficiary from the bank account ) or through a Service Provider which may or may not be a bank

b. To examine how Electronic Benefit Transfer schemes can be aligned with the Electronic Payment System initiatives in the country

c. Issues relating to outsourcing of activities like enrolment, card issuance, maintenance of the technical infrastructure, cash disbursal, etc., by banks to their agents