The finance ministry has drawn up a comprehensive plan that requires banks to provide a kisan credit card to every farmer and a general purpose card to other households.

The plan, sent earlier this week to the heads of all public and private banks and regional rural banks, envisages a bottom-up financial inclusion drive starting at the district level.

The directive makes it clear that every household must have a bank account, credit card (kisan credit card for farmers and general credit card for others), micro-insurance and micro-pension scheme.

The country has nearly 140 million rural households, most of which do not have credit cards. If all these households were to be issued a card, it will substantially add to the credit card numbers, currently pegged at 17 million.

"It is a dangerous idea as credit cards are unsecured loans and are at times used for usurious consumption," said a senior banker, requesting anonymity.

Most banks are in the process of tightening their credit card operations, which have resulted in the total number of cards declining sharply from the peak of 28 million in 2007-08.

The emphasis of the financial inclusion drive will now change from the village to gram panchayat level, as that has become the basic planning unit for the various government schemes.

"As gram panchayats are at the centre of various developmental and welfare schemes and will play an important role in the electronic benefit transfer, service area of the banks needs to be defined in terms of the gram panchayats," the directive says.

Each gram panchayat will have a designated bank that will be responsible for the coordination and delivery of the various financial services in that area.

District-level officials of banks, insurance companies and Nabard will prepare a comprehensive financial inclusion plan for each district.

All underbanked districts will have, at least, one branch for areas with population exceeding 5,000 by September 2012. These branches will have only two officials and an ATM to begin with.

At least one branch should be available at a radial distance of 5 km in the underbanked districts.

In habitations without branches, banking correspondents will have to provide financial services with each correspondent dealing with 1,000-1,500 households for them to be viable.

The plan also mandates that government benefits must be transferred electronically into the accounts of the beneficiaries in the areas covered under the financial inclusion drive.

The lead banks have to work out a road map for Electronic Benefit Transfer in respect of each of the 32 government schemes, including the flagship Mahatma Gandhi National Rural Employment Guarantee Act, which involve some sort of financial transfer.

The Reserve Bank of India has already issued guidelines on Electronic Benefit Transfer and its convergence with the financial inclusion plan.

(Source - Economic Times)