Jan dhan: A look at the progress and challenges of financial inclusion

Govt’s ambitious jan dhan yojana aimed at increasing financial inclusion has notched up impressive numbers. We take stock of the progress so far, and the challenges ahead


Shishir Tripathi | October 22, 2014

  • On September 28, speaking at the Madison Square Garden in the US, prime minister Narendra Modi said banks across the country have garnered '1,500 crore in deposits in more than four crore accounts opened under the pradhan mantri jan dhan yojana, launched exactly a month before on August 28.
  • A week later, addressing a rally in Mumbai on October 4 ahead of the Maharashtra assembly elections, Modi again zoomed in on the scheme to cite one example of “good work” by his government.
  • On October 7, in successive tweets, Modi said, “Response to jan dhan yojana has been unprecedented! Over five crore bank accounts have been opened within five weeks of the launch.” And, “We have to continue to reach out to those at the end of the queue & ensure they have bank accounts. Full coverage is the need of the hour.”

Bharti, a housewife from Madangir in south Delhi, may not have heard or read the prime minister waxing eloquent about his big-ticket scheme but she had been there and done that long before officers collated those figures for Modi.

“I usually save a small amount of money every month from the household expenses. But since the money remains at home, I end up spending it,” she said. The simple solution, of course, is to open a bank account, and it did not take an economist’s advice for the 30-something to figure that out: she had thought of opening an account last year. But the multiple formalities stopped her from approaching a bank.

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The jan dhan camp held at the local State Bank of India branch on August 28 as part of the pradhan mantri jan dhan yojana (PMJDY), however, got her the account – all she needed to do was provide a photocopy of her Aadhaar card.

So, what is this yojana all about? It is precisely what Bharti had in mind when she joined the tail end of a long queue at the camp on August 28 – to open an account. In other words, to bring a greater share of the population into the formal banking loop. While in a way it is carrying forward the previous UPA government’s financial inclusion scheme under a different name, PMJDY is focused in its ambition: under it, more than six lakh villages across the country would be mapped, organised into sub-service areas (SSAs) of 1,000-1,500 households, and allocated to banks to provide at least one fixed point banking outlet in the form of either a branch or a business correspondent (called a bank mitra).

The other components of the plan include providing at least one basic banking account to each household with RuPay debit card with inbuilt accident insurance cover of Rs1 lakh, and an overdraft facility of Rs 5,000 after the account is satisfactorily operated for six months.

The snags: little homework, staff shortage

While the government is highlighting achievements of the scheme – over 5.5 crore accounts were opened under the scheme across the country till October 8, according to the department of financial services, with SBI leading the drive – many stakeholders feel the purpose of the scheme is not aptly served due to a large amount of duplication of accounts.

Among those apprehensive of account duplication – or people already having a bank account opening another only to get the ‘freebies’ – Reserve Bank of India governor Raghuram Rajan, who, on September 15, cautioned bankers that the scheme would be a “waste” if duplicate accounts are opened. He also warned that the scheme would come to a naught if the newly opened accounts were not used to their capacity, and if there was no “full coverage”.

Commenting on the issue of account duplication, Anurag Jain, joint secretary, department of financial services, said: “It might have happened because some people thought that by opening an account under PMJDY they would get additional benefits being offered under the scheme – like overdraft facility and insurance cover of '1 lakh. But we are educating people that all these benefits will be available to existing account holders as well. To get the insurance claim, all they have to do is apply for RuPay card.

“Once people (with prior accounts) understand that all benefits under the current scheme are available to them also, there will be no reason for opening additional accounts, unless needed.”

But like Rajan, a senior bank official also pointed out the haste with which the scheme was launched: “We were not allocated enough time and resources to identify actual beneficiaries before the scheme was launched. We were told to identify the beneficiaries and ensure that duplication is avoided at a meeting of state-level bankers’ committee (SLBC) held at the beginning of September only after it was announced. We were told to take help of workers from gender resource centres (GRC) working in Delhi and given a month’s time.”

On duplication, this bank official, whose name is being withheld on request since the official is not authorised to speak to the media, said, “According to my estimates, around 70 percent people who have opened accounts (under PMJDY) already have an account. They have opened the account only to ensure they can avail of the benefits provided under the scheme.”

VK Goel, manager, State Bank of India in south Delhi’s Ambedkar Nagar branch, appreciated the scheme, saying, “This is a very good scheme for financial inclusion. We have 28 banks under us and have opened 75,661 accounts till September 12.” But he, too, complained about lack of time to implement the scheme.

According to many bank officials, normal business of banks has been hampered to a great extent while working on opening accounts under PMJDY. “We are not doing much business these days. We are busy with opening accounts under PMJDY,” a bank official said on conditions of anonymity.”

What is also worrying bankers is that most people have opened no-frill, zero-balance accounts, a sure sign that many would not use it for a long time.

The concern regarding opening of accounts without proper identification of beneficiaries, which is causing useless duplication, is not limited to people engaged in implementation of the project. Even RBI governor Rajan, speaking at FIBAC, an annual banking event organised by FICCI and the Indian Banks’ Association on September 15, told bankers that the jan dhan scheme’s “target should be universality, not just speed or numbers”.

Confusion, lack of information

While most agree that despite the shortcomings and implementation-related challenges the scheme offers the poor services like free insurance cover and overdraft facility, there is confusion, too, as is the case for any new scheme, especially one rolled out purportedly without adequate homework. “People come to us asking for the overdraft facility,” said Goel of SBI, Ambedkar Nagar. “We have to tell them that they can avail this facility only after (operating the account for) six months from the date of opening of the account.” Besides, the overdraft facility would be subject to transactions of the account holder. While the overdraft amount would initially be limited to '1,000, it will be raised to '5,000 only after observing satisfactory performance of the account.

Asked about the overdraft facility feature, Sangeeta, a resident  of Madangir, who opened her account recently, said instantly, “My neighbour told me that I have to deposit '2,500 and the government would give a further Rs 2,500.”

Many people who had come to open an account under PMJDY at multiple bank branches in Delhi told Governance Now they were not aware of a specific clause regarding insurance claim offered under the scheme. According to an SBI official, if an account holder does not make a transaction within 45 days of opening the account, her/his claim over the insurance will cease to exist.

Another issue that is posing a challenge in the effective implementation is the RuPay ATM card. While 52,978,557 accounts were opened till September 17, only 17,848,949 RuPay cards were issued.

A bank official explained this mismatch on a grand scale: “I think only one company is producing the RuPay ATM cards to be given to account holders (under PMJDY), and there is huge shortage of these cards. We have told account holders that they will be issued the card within 15 days of opening the account but we are not sure whether we will able to do so.”

Another concern that needs to be addressed, as an official said, is on an average '45 is spent on opening each account, which becomes huge if one considers the total number of accounts opened and would go waste if people do not use their accounts properly.

For now, while the government is applauding itself for the financial inclusion initiative, NGOs and workers of gender resource centres (GRCs) who mobilised people are bearing the brunt of the confusion. “The people we mobilised to open accounts are now coming to us with complaints that they are not getting the facilities promised,” said Poonam, a GRC project coordinator. “This is like a deceptive advertising – the people were told about the attractive points of the scheme but were not informed properly about the conditions attached.”

Postscript: Through a circular issued by the finance minister on September 16, PMJDY was extended to old accounts holders too. This, experts said, is a welcome step as it would reduce duplication. Further, additional life insurance cover of '30,000 is available for those who open accounts under the scheme till January 26, 2015. Banks, though, are clueless about it as they have not got any direction from the government regarding this.

This story appeared in the October 16-31, 2014 issue



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