The delivery of financial services at affordable costs to vast sections of disadvantaged and low-income groups continues to remain a big challenge in our country. Policy-makers have been focusing on financial inclusion of India’s hinterland primarily for three important needs: Creating a platform for inculcating the habit of saving money; providing formal credit facilities; plugging leakages in public subsidies and welfare programmes.
Due to the absence of savings, the poor have been living under financial duress for long. The unbanked population has been powerlessly dependent on informal channels of credit, like the usurious moneylenders. In addition, a considerable sum of money that is meant for the poor does not actually reach them. The government is, therefore, pushing for direct cash transfers to beneficiaries, which needs a bank account.
Against this backdrop, the Pradhan Mantri Jan Dhan Yojana (PMJDY) launched in August 2014, has been conceived as a national mission of financial inclusion with the objective of covering all households in the country with a bank account. Other than being able to open a new bank account with zero balance, the Jan Dhan Yojana is offering certain incentives for the customers, such as a life insurance cover of Rs 1 lakh and health insurance cover of Rs 30,000 as an incentive to open a bank account, along with providing RuPay debit cards. Good customers would also be eligible for an overdraft facility of up to Rs 5,000 after six months.
The question that arises is why only RuPay debit cards, when private sector ones like MasterCard and Visa are also available. It is a competition distortion and relying on one public sector facility is fraught with problems of monopolistic abuses. On the inauguration day itself, 1.5 crore (15 million) bank accounts were opened under this scheme.
As of November 10, 7.24 crore accounts have been opened. The effort for financial inclusion is not new in our country. Ever since bank nationalisation in 1969, many schemes aim-ed at financial inclusion have been launched. Most have flopped. In 2011, the government launched Swabhimaan to bring banking services to large rural areas without banking services. However, this scheme quickly degenerated into merely an account-opening exercise, because no one really used it to save money. There is a real danger of the same thing happening with the Jan Dhan Yojana.
The Reserve Bank of India’s vision for 2020 is to open nearly 600 million new customer accounts and service them through a variety of channels by leveraging on IT. The idea of universal bank accou-nts was originally proposed by a panel constituted by the RBI to improve financial inclusion. The panel proposed that every adult Indian be granted a Universal Electronic Bank Account (UEBA) by January 2016.
The government argues that the Jan Dhan Yojana is different as it focuses on coverage of households as against the earlier schemes which focused on coverage of villages. It promises coverage of rural as well as urban areas in a manner that banking facility will be available to all within a reasonable distance, say about five kilometres. Given earlier experiences, the size of the country and lack of infrastructure, this is overambitious.
The number of people with access to banking system continues to be very limited even years after introduction of several inclusive banking initiatives in the country. Still, out of the 24.67 crore households in the country, 10.19 crore do not have access to banking services. In rural areas, 44 per cent households and in urban areas 33 per cent do not have a bank account. Bank profitability is crucial for the success of any financial inclusion scheme. Only if people use the accounts and save money will banks have the incentive to service them. This is the reason why regular usage for six months is being incentivised and additional services will be on offer after August 2015.
But the data provided by department of financial services, in response to an RTI enquiry, says that as on November 7, 2014, out of the total 7.1 crore bank accounts opened, 74 per cent (5.3 crore) accounts are with “zero balance”. This is a matter of serious concern. In addition, duplication of bank accounts — in the quest to achieve high targets, or to avail insurance benefits — is a big challenge. If duplicate accounts are opened but remain dormant, it’d be financial inclusiveness only in name.
Some critics fear that the overdraft facility could end up swelling bad loans for banks as the scheme does not spell out how the banks can collect debts. With so many grandiose debt waivers in the past, people may end up treating the loans as freebies. Overburdening/lack of incentivisation of bank officials resulting in hampering of normal operations, customer harassment etc. also needs to be looked into. Most of the schemes that aim to cover the entire population have had their share of errors in on-boarding citizen information. Bankers say that Aadhar is crucial for the success of the Jan Dhan Yojana. However, Aadhar scheme is a long way from achieving universal coverage. Since Aadhar is backed by biometric readings, it eliminates the risk of duplication. But while banks have been given targets with specific deadlines under the Jan Dhan Yojana, they do not have control over Aadhar implementation, which is going to take more time to cover the entire county.
The department of post, if given full banking licence, can play a key role in the Jan Dhan Yojana in view of their unparalleled reach. Seco-ndly, branchless-banking (banks on wheels) and micro-bank branches have to be brought in. Use of technology, such as mobile phones, can make the scheme workable/feasible.
The Jan Dhan Yojana should be looked as just one of the multiple approaches to achieve financial inclusion. Only a holistic framework inclusive of the Jan Dhan Yojana, financial education, specialised products, improved infrastructure can result in effective financial inclusion. But that requires political will, bureaucratic support and persistent persuasion by the regulator.
The writer is secretary-general of CUTS International. George Cheriyan and Amol Kulkarni of CUTS contributed to the article
