The government deserves credit for having taken relatively little time to roll out both the universal access to bank accounts and the full menu of services that will be delivered through them. Still, several bottlenecks to achieving saturation coverage exist - emerging mostly from the resource constraints of banks and insurance companies. Such a massive expansion of products and services will clearly require expansion of both information technology systems and human capital. Of course, the combination of the Aadhaar number and mobile networks will hugely facilitate the process, but it will be no easy task to achieve a seamlessly integrated system. Funds will be required to make the necessary investments for this effort - and this is where questions about the overall viability of the programme arise.
The premia and monthly contributions for the insurance and pension products will be attractive to customers and a far cry from the options and pricing available from other sources - although the interest rate under the pension scheme is still lower than current bank rates. It may be the case, still, that subscription to these new products will grow as fast as the banks can offer them. However, at these pricing points will banks manage even to recover their costs, let alone earn a return on their investment? Given their current cost structure, most likely not. Yes, the social return on these investments is certain to be higher than the private rate, which provides an argument for a direct subsidy out of the government's resources. However, fiscal constraints clearly prevent this. In the absence of an explicit subsidy, the government is resorting to an indirect and a hidden subsidy through the losses that will be incurred by banks in delivering this portfolio of services. Given the fact that most of these banks have substantial investments from private investors, this represents a governance failure. Private shareholders will, presumably, not even be given the opportunity to determine whether the banks that they are invested in should participate in this programme. In short, the very commendable drive to achieve meaningful financial inclusion must be based on explicit, direct and transparent financial commitments by the government.