Working out of a tiny rented room furnished with a wooden table, small biometric authentication machine and shelf stacked with passbooks, Ganesh Dangi is a one-man bank for a village of 650 people in northwestern India's desert state of Rajasthan.
A business correspondent, or local representative, for State Bank of Bikaner and Jaipur (SBBJ) in Ranchhodpura village, 40 km (25 miles) east of Udaipur city, Dangi is racing to sign up villagers to new "no frills" plans to meet a government target that every family in the district should have a bank account.
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New Delhi plans to directly transfer cash payments for subsidies into these accounts, a move aimed at tackling graft in India's creaky, corruption-ridden public distribution system.
If successful, the initiative could also bring modern banking to the doorstep of rural India, a goal towards which progress has so far been fitful despite mandatory targets set by the government and Reserve Bank of India.
"Nearly 80 farmers in the village have taken crop loans. They have more confidence in banks now," says Dangi, who earns 1,500 rupees ($30) a month plus commissions. "They now know banks are not cheats to swallow up their money."
The target is a tough one in a country where only 35 percent of people had formal bank accounts, versus the global average of 50 percent, according to a financial inclusion survey by World Bank in 2011. Nearly two-thirds of India's 1.2 billion population still live in rural areas.
Currently being piloted in 20 districts, including three in Rajasthan, the program is expected to go nationwide in phases over the next year.
The government plans to transfer 3.2 trillion rupees ($58 billion) to beneficiaries of its subsidy schemes and welfare programs, according to newspaper reports.
It will pay the wages for more than 50 million workers in a rural job scheme, pensions for 20 million senior citizens and about 5 million education scholarships directly to bank accounts linked to a unique identification number.
It is also likely to free farmers from the clutches of money-lenders who charge annual interest of 24-50 percent, giving them access to institutional finance.
Shiva Kumar, managing director of SBBJ, a subsidiary of government-owned State Bank of India , says the initiative will bring "financial freedom" to India's vast rural hinterland, home to about 800 million people.
"Lot more money will come into the banking system. It can boost prosperity in the villages and that will get more business to banks," he said.
Banks fear early pain - the move could burden them with 250 rupees to 500 rupees ($4.5-$9) of additional costs per account annually, while profits may remain elusive for at least 2 years.
Still, they see a huge opportunity even if only a quarter of these new accounts were to turn into regular customers, demanding loans, mutual funds and other products.
The program could help banks and business correspondents earn about 40 billion rupees ($735 million) as fee income, Mumbai-based brokerage Anand Rathi, said in a note this month.
GAME OF PATIENCE
Banks are currently losing money in most of their rural operations, hit by highs costs, poor connectivity and low savings in areas where average per capita income is around 16,000 rupees, compared with 44,000 rupees in urban areas.
"It's a long, patient game," said Anil Jaggia, chief information officer at HDFC Bank, India's No.2 private sector lender, adding it will not boost revenues immediately.
"Over time if people get into serious banking habits then this whole initiative may get to breakeven and make some tangible money."
In the meantime, the new accounts are likely to put pressure on banks' existing infrastructure and add to costs, officials said. Industry experts say banks need to look at low-cost and innovative models of doing business in India's villages.
"Banks have not done much in this segment so far," said Manish Khera, CEO of FINO Paytech, a micro-banking technology and business correspondent services provider.
FINO provides business correspondents such as Dangi to banks, trains them and also equips them with biometric devices.
"The investment is done by the business correspondent firms. As far as the villages are concerned, the most economical way for banks to continue is to do it through a BC," Khera said.
According to rough estimates from banks, every transaction done at a branch costs around 50 rupees while those done at ATMs cost 15 rupees. But banks are not keen on installing ATMs in villages given the costs involved in having 24-hours electricity, surveillance and communication facilities.
Concern that loans to rural customers could go bad is also making lenders jittery. For SBI, 9 percent of its farm loans had turned bad in the year to March 2012.
In one rural branch in Udaipur, SBBJ had bad loans of around 13 percent. This compares with an average 3 percent for the banking system across India.
Prami Devi Meghval, 24, who is five months pregnant, opened an account with ICICI Bank , India's No. 2 lender, this month through FINO in Udaipur, to benefit from the subsidies earmarked for expectant mothers by state and central government.
"Everyone says government will give us money. I don't know how much the government will pay," said Meghval, who did not get the money when she was pregnant the last time.
"I never tried to open an account earlier. We don't have money to keep in bank accounts."
TC Songara, manager of the SBI branch in Udaipur, a popular tourist destination famous for its lakes, says his branch has opened 2,000 new accounts in the two months to December compared to a monthly average of 100 new customers and is now facing a shortage of passbooks.
But he is worried that many new customers like Meghval might use the bank only to take out their cash payments.
"The challenge is to ensure they start using banking products," he said. "If they only come to the branch to withdraw subsidies it is not going to help us." ($1 = 54.4575 Indian rupees)
(Editing by Alex Richardson)