Overview of Andhra Pradesh Smartcard Project

In 2006 Department of Rural Development, Government of Andhra Pradesh started a pilot initiative to make payments of Government benefits to the beneficiaries through Smartcards which are backed by bank accounts. The overall objectives of the initiatives are: i. Provide a operational frame work for increasing the outreach of main stream banking and financial services to the poorest of the poor by using technology based solutions. ii. Ensure efficient and timely transfer of govt. benefits to the poor. iii. Minimize the possibility fraudulent payments. iv. Ultimately to achieve Total Financial Inclusion through Smartcards. 1. Approach: The approach is to create branchless banking infrastructure by establishing a network of business correspondents in each village. Banks and Government will work together to open accounts and issue Smartcards to the poor. To begin with, certain Government benefits like Social security pensions and NREGS wage payments will be delivered through this network. In the next stage, banks will deliver main stream banking services like Savings, Deposits, Remittances, loans etc. The endeavor is to establish a banking out post in each village to include the unbanked poor. Thus, it is a major step towards Total Financial Inclusion. 2. Architecture: Banks lay down the entire infrastructure. In order to achieve this, they procure service providers through a process of competitive bidding. Service providers typically extend two important services namely:
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i. ii.

Provide Technology (Technology Provider). Act as a Banking correspondent on behalf of Bank by opening & operating banking outposts in every GP and delivering financial services to people. The technology backbone includes a hand held devise called POS/POT

(POINT OF SALE / POINT OF TERMINAL) at village level. POS/POT can get connected to bank server and conduct two-way transaction by down loading account data from Bank servers and uploading withdrawal particulars. A Biometric reader and printer are built into POT which enables identification of beneficiary and printing receipt of transaction. POS is manned by a SHG member called CSP (Customer Service Providers) on behalf of Bank. These members are trained rigorously. Cash required for disbursement to beneficiaries is delivered at the door steps. CSP downloads account balance data from bank server and makes payments. 3. Key-Processes: Important steps involved in the entire range of operations are briefly mentioned below:

Enrolment: Department gives list of beneficiaries (SSP & NREGS) to the Bank. Concerned bank conducts an enrolment camp in the village. GPs, SHG Federations at village level assist in identification of beneficiaries 6/10 finger prints, photo and other details of the beneficiary are captured during the enrolment and an account will be opened

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Preparation and issue Smart Card: Data collected during enrolment is encrypted on the card including biometric (Encrypted Java smart card with 32 KB memory) Card bearing the photo of the beneficiary is handed over to the beneficiary in the village within three weeks of enrolment. Business Correspondent (B.C.) & Customer Service Provider (CSP): The business correspondent of the bank appoints CSP at the village level. Training to CSP is given by Bank & B.C. Required hardware like Finger print reader, Printer, mobile phone etc., (POT) are positioned in the village. Payment: Once accounts are opened and card is given, Government issues instructions to the Banks authorizing payment. List of beneficiaries and authorized amount for cash will be given Individual account of beneficiary is credited by the Bank. Cash is physically transported by the B.C on behalf of bank and delivered in the village to CSP Disbursement: CSP sits at the pre-designated government premises usually GP building etc Beneficiary approaches with card. Card is inserted in the card reader and identity of beneficiary is established. Based on the A/c balance of the beneficiary as displayed on the screen, cash is paid. A receipt is generated in duplicate. In case of exigencies, manual payment is made
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Data Uploading: CSP / BC uploads data of disbursements daily. Banks database is updated. MIS report on progress of disbursement is submitted to Government by Bank. 4. Pilot (One Bank One Mandal) : In A.P, a pilot on smart cards started with Rural Development Department establishing a steering committee at the state level which is comprised of officials from the State Government, RBI and Bankers. Pilot initiative was started in August 2006, 8 mandals (blocks) are selected for SSP & NREGS payments by issuing smart cards and laying down EBT platform. 6 banks namely SBI, SBH, AB, UBI, APGVB and Axis bank participated in the pilot. Payments under the pilot started in May 2007 and are continuing till date. So far, 1.37 lakh beneficiaries are enrolled and an amount of Rs.67.02 Crs are disbursed. 5. Upscaling (Bank led Service Area Model): During August, 2007 the pilot was reviewed and it was decided to upscale the project to other districts in the State. When the matter was discussed in SLBC, based on the insistence of bankers, it was decided to adopt service area approach for implementation. As per this approach, there are 27 banks having branches in six districts. For the last more than an year, upscaling is taking place in 6 districts. The status of Phase-I is shown below: No. of villages enrolment started No. of beneficiaries enrolled No. of beneficiaries issued cards Amount disbursed to the beneficiaries : 3582 : 24.86 Lakhs : 22.28 Lakhs : Rs.343.16 Crores No. of target beneficiaries under NREGs and SSP : 39.76 Lakhs

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Some of the serious difficulties experienced in the service area approach are i. Out of 27 banks only 20 banks came forward to implement the project and after rigorous persuasion only, 9 banks finalized their service providers and started the work. There is no news yet from remaining banks; hence work could not started in their service area even after 1 year. As a result, in each district there are several isolated pockets where project is being implemented. Progress is also very slow and sizeable area is not saturated. ii. Each bank branch has few villages under that particular branch. As a result in each mandal (block) the development officer (MPDO/BDO) has to deal with several banks to make payment. iii. Because service area is small and widely dispersed, for service providers, operations became extremely cumbersome. (service area approach did not take off in spite of best efforts). Consequently neither banks nor Government nor people could take the full advantage of an efficient payment system. As such this model failed to enthuse any stakeholder. 6. Phase II One Bank - One District model In view of tardy progress there were internal deliberations on developing alternate models that are capable of replication across the State. addressed RBI recommending two new models. i. ii. To allow private financial service providers other than banks to lay down the infrastructure & operate the payment system. To allow the whole district to be allotted to one bank regardless of service area, so that scales of economy can be achieved and expansion can be easier and faster. This model is described as One Bank One District model.
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GoAP

In response to the request from Government of A.P, RBI set up a high level committee which deliberated of the above issues. The committee did not support the private service providers model but, strongly supported the second model. Based on the outcome of high level committee, while efforts are underway in districts which are started, GOAP embarked on the second phase upscaling using of One District One Bank. This effort is under way since August, 2008. So far, SBI is allotted three districts, SBH one district, Andhra Bank two districts, Axis Bank two districts, APGVB one district, Syndicate Bank two districts and UBI three districts. The progress of the new model is shown below. Status of Phase-II districts is shown below: No. of villages enrolment started No. of beneficiaries enrolled No. of beneficiaries issued cards Amount disbursed to the beneficiaries : 6749 : 36.96 Lakhs : 33.93 Lakhs : Rs.355.51 Crores

No. of target beneficiaries under NREGs and SSP : 93.35 Lakhs

As can be seen from the above, in the One bank one district model, Coverage is quick in terms of all aspects of the project.

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7. Overall status at a Glance ( Pilot, Phase-I & II): No. of Districts in which the project is started No. of Gram Panchayats where work started No. of beneficiaries enrolled No. of cards issued Amount paid 8. Other Important Developments: RBI has recently announced an incentive policy under which banks are entitled to receive Rs. 50 for every Smartcard account opened. This policy is effective from 1st July, 2008 to 30th July 2009. Rural Development Department, Government of A.P was requested by RBI to furnish proposals of eligible banks to draw the incentives and the same was sent. : 20 : 10530 : 63.19 lakhs : 57.38 Lakhs : Rs.765.69 Crores

Target no. of beneficiaries under SSP & NREGS : 1.35 Crores

Government of India established FIF (Financial Inclusion Fund) and FITF (Financial Inclusion Technology fund) each with Rs. 500 crores and placed at the disposal of NABARD. Rules for the operation of the funds are also issued. &&&

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