In a statement today the department said it estimated that if agreements were reached with the banks and beneficiaries were migrated into the banking system, "this could save government more than R1bn over the next four to five years years".

The statement said: "The banks have a critical role to play in the fight against fraud in social grants; in enhancing the improvement of service delivery for the poorest of the poor in general; as well as ensuring that social grant beneficiaries are paid in conditions of dignity and at reduced costs."

The minister said: "We therefore think that as we intensify our overall efforts to eradicate fraud and corruption in social grants, we should work in close co-operation with the banks as this will further advance our goal of paying the beneficiaries efficiently as well as restoring their dignity."

"The fact that the government had been losing no less than R1,5bn per annum due to fraud and corruption is indicative of the serious inefficiencies that were associated with the current payment system which must be eliminated as a matter of urgency.

"Therefore, as an integral part of the establishment of the South African Social Security Agency (SASSA) over the next three years which is envisaged to improve the quality of service delivery in social grants, we are already exploring and negotiating the migration, where possible, of more beneficiaries to the Post Offices and the banks."

Currently there were 10 million beneficiaries of social grants and the number was expected to increase significantly as the campaign to register all eligible children under 14 years for the child support grant during this financial year was being intensified, the department said.