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Panchayat Banks: Providing banking facilities at the village level in Jharkhand

Published: 20th Jul, 2020

The Panchayat Banks model of Jharkhand has provided rural citizens with improved access to a range of government schemes as well as financial services. 

The Panchayat Banks model of Jharkhand has provided rural citizens with improved access to a range of government schemes as well as financial services. The initiative has also led to the creation of local entrepreneurs amongst community members and provided a source of livelihood to bank operators. It has reduced systemic leakages and increased transparency.

Need for such an Initiative

The network of financial institutions in Jharkhand is weak as most of the bank branches are mostly concentrated in urban areas. Residents of rural and far-flung areas face several difficulties in carrying out financial transactions and also to access government schemes such as pensions and MGNREGA payments.

Initiatives taken to increase the reach of the financial network

  • Postal savings schemes and regional rural banks have expanded their reach to some extent, although these are still confined to the block level.
  • In 2010 the Government of Jharkhand decided to introduce financial services as part of the existing system of Common Service Centres (CSCs), known as Pragya Kendras in Jharkhand.
    • The Pragya Kendra is a Gram Panchayat level centre. Citizens can visit the kendras to avail of e-Governance services such as applying for a birth certificate, caste certificate, etc.
    • Locally residing Village Level Entrepreneurs (VLEs) build and operate these centres in return for a commission on each service provided.
    • The Government of Jharkhand decided to integrate the Panchayat Banks into the Pragya Kendras, rather than create stand-alone centres.


  • The primary objective of this initiative is to provide banking and financial services at the Panchayat level. The idea is also to provide access to government schemes.

Key Stakeholders

  • The key stakeholders involved in the programme are Jharkhand Agency for Promotion of IT, banks, Service Centre Agencies (SCAs), and VLEs.

Implementation Strategy

  • The first step in implementation was to bring banks on board. This was done through regular engagements between the government and banks through the State Level Bankers Committee.
    • The first partner banks were the State Bank of India (SBI) and Bank of India (BoI).
  • The strategy was to use a ‘one block, one bank’ approach for streamlined payments.
  • Initially, two service delivery models – smart card and kiosk banking – were used. However, over time the kiosk banking model based on online biometric authentication as used by SBI proved to be more successful than smart cards. Hence, a decision was taken to standardise kiosk banking across the state and discontinue the smart card model.
  • The initial benefit delivered through the system was MGNREGA wage disbursals. Subsequently, different departments were directed to integrate their systems into the initiative.
  • Currently, financial transactions available at the Panchayat Banks are cash deposits, cash withdrawals, money transfers, and account opening. For these two models are available:
    • One is the SBI model where the biometric data of the account holder is stored with SBI itself.
    • The other model is the Aadhaar based system where biometrics is stored with the Unique Identification Authority of India (UIDAI).
  • To spread awareness the government has held camps and fairs where citizens were mobilised and encouraged to open bank accounts.

Impact of the Project

  • Improved access to financial services in rural areas: No need to travel for long distances (urban areas) to avail of financial services.
  • Reduction in corruption and leakages: The usage of biometric authentication and the direct transfer of payments to beneficiary accounts have significantly reduced corruption and leakages.
  • Increase in savings: As customers are now able to withdraw only as much as they need, since they can access the withdrawal services more easily.
  • Increased efficiency of banks: The reduced load on bank branches has enabled them to devote more time to core operations such as deposit mobilisation and credit operations.
  • Livelihood generation: Provides entrepreneurial opportunities to community members.

Key Challenges & Steps taken to overcome these challenges

  • Availability of electricity and internet, limited network connectivity, unreliable internet connectivity
    • Efforts are currently underway to connect Panchayats to the National Optical Fibre Network through which 100 MBPS connectivity will be available to the Panchayat headquarters where CSCs are located.
  • Delays in processing VLE applications
    • The importance of the initiative has to be effectively communicated to the local level bank managers to overcome this issue.
  • Limited data sharing between agencies.
  • Limited inter-operability: There is limited synchronisation between bank switches. Due to which if the customers of one bank go to a Pragya Kendra that is affiliated to another bank, they are unable to conduct transactions.

Replicability of the Project

  • For replicability following preconditions are required:
  • Willingness and support from banks.
    • Banks should train personnel, especially grassroots functionaries who directly interface with SCAs and VLEs.
    • Banks should also provide training to VLEs to enhance their efficiency and smoothen operations.
    • The banks will also have to ensure interoperability.
    • Systems to make quick payments to SCAs and VLEs have to be established.
  • It needs to be ensured that IT providers share data. All stakeholders need to integrate their IT systems in such a way that relevant information is always and immediately available.
  • Adequate and appropriate infrastructure is necessary for the effective functioning of the Panchayat Banks.


Panchayat Banks is an innovative effort to enhance access to financial services in rural areas. It has served a felt need for financial services in rural areas. Efforts should be made to synchronise transaction details of Panchayat Banks with governmental servers. This will help in getting real-time updates. Efforts should be made to further improve this banking model, and the goal of one bank per Panchayat is to be achieved.


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