Pradhan Mantri Jan Dhan Yojna (PMJDY) _ Economics
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The document summarizes the key differences between the previous Swabhimaan financial inclusion plan and the current Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme. Swabhimaan focused on bringing banking services to villages with populations over 2,000 by 2012, using business correspondents. PMJDY has a more comprehensive nationwide coverage targeting access to banking facilities for all households across rural and urban areas, along with additional benefits like insurance coverage and overdraft facilities.
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Pradhan Mantri Jan Dhan Yojna (PMJDY) _ Economics
- 1. PRADHAN MANTRI JAN DHAN YOJNA & ITS IMPACT ON INDIAN ECONOMY 2016 SUBMITTED BY : CHIMAYA SAHOO - 17 DIVYA THEREJA - 23 HARSHIT GOSWAMI - 26 RACHIT HARNE - 42 RAJAT SETH - 43 RASHMEET KOUR - 44
- 2. 1 Table of Contents Introduction.......................................................................................................................................2 Documents required to open an account under PMJDY.....................................................................2 Special Benefits under PMJDY Scheme.............................................................................................3 Performance...................................................................................................................................4 Implementation - 2 Phases..................................................................................................................5 Phase 1: .........................................................................................................................................5 Phase 2 ..........................................................................................................................................6 Benefits of PMJDY...........................................................................................................................6 PMJDY & KYC......................................................................................................................................4 SWABHIMAAN (Old Financial Integration Plan) & PMJDY ......................................................................9 DIGITIZATION AND PRADHAN MANTRI JAN DHAN YOJANA .................................................................12 Rupay KCC....................................................................................................................................13 CHALLENGES TO JAN DHAN SCHEME .................................................................................................14 Effect of PMJDY on Macroeconomic Indicators...................................................................................15 Macroeconomic indicators............................................................................................................15 1. Economic Growth..................................................................................................................15 2. Economic Stability .................................................................................................................15 3. Economic Inequality ..............................................................................................................15 SHORTCOMINGS OF JAN DHAN YOJANA.............................................................................................17 How can the scheme be more effective?........................................................................................19
- 3. 2 Introduction PMJDY is a National Mission on Financial Inclusion encompassing an integrated approach to bring about comprehensive financial inclusion of all the households in the country. The plan envisages universal access to banking facilities with at least one basic banking account for every household, financial literacy, access to credit, insurance and pension facility. In addition, the beneficiaries would get RuPay Debit card having inbuilt accident insurance cover of र 1 lakh. The plan also envisages channeling all Government benefits (from Centre / State / Local Body) to the beneficiary’s accounts and pushing the Direct Benefits Transfer (DBT) scheme of the Union Government. The technological issues like poor connectivity, on-line transactions will be addressed. Mobile transactions through telecom operators and their established centers as Cash Out Points are also planned to be used for Financial Inclusion under the Scheme. Also an effort is being made to reach out to the youth of this country to participate in this Mission Mode Programme. Run by Department of Financial Services, Ministry of Finance, on the inauguration day, 1.5 Crore (15 million) bank accounts were opened under this scheme. Guinness World Records Recognizes the Achievements made under PMJDY, Guinness World Records Certificate says "The most bank accounts opened in 1 week as a part of financial inclusion campaign is 18,096,130 and was achieved by Banks in India from 23 to 29 August 2014". By 1 June 2016, over 22 crore (220 million) bank accounts were opened and ₹384.11 billion (US$5.7 billion) were deposited under the scheme Pradhan Mantri Jan-Dhan Yojana (PMJDY) is National Mission for Financial Inclusion to ensure access to financial services, namely, Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner. Account can be opened in any bank branch or Business Correspondent (Bank Mitra) outlet. PMJDY accounts are being opened with Zero balance. However, if the account- holder wishes to get cheque book, he/she will have to fulfill minimum balance criteria. Documentsrequired to open an accountunder PMJDY If Aadhaar Card/Aadhaar Number is available, then no other documents are required. If address has changed, then a self-certification of current address is sufficient. 1. If Aadhaar Card is not available, then any one of the following Officially Valid Documents (OVD) is required: Voter ID Card, Driving License, PAN Card, and Passport & NREGA Card. If these documents also contain your address, it can serve both as Proof of Identity and Address. 2. If a person does not have any of the officially valid documents mentioned above, but it is categorized as low risk' by the banks, then he/she can open a bank account by submitting any one of the following documents:
- 4. 3 Identity Card with applicant's photograph issued by Central/State Government Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks and Public Financial Institutions. Letter issued by a gazette officer, with a duly attested photograph of the person. Special Benefits under PMJDY Scheme 1. Interest on deposit. 2. Accidental insurance cover of Rs. 1 lac 3. No minimum balance required. 4. The scheme provide life cover of Rs. 30,000/- payable on death of the beneficiary, subject to fulfillment of the eligibility condition. 5. Easy Transfer of money across India 6. Beneficiaries of Government Schemes will get Direct Benefit Transfer in these accounts. 7. After satisfactory operation of the account for 6 months, an overdraft facility will be permitted 8. Access to Pension, insurance products. 9. The Claim under Personal Accidental Insurance under PMJDY shall be payable if the Rupay Card holder have performed minimum one successful financial or non-financial customer induced transaction at any Bank Branch, Bank Mitra, ATM, POS, E-COM etc. Channel both Intra and Inter-bank i.e. on-us (Bank Customer/rupay card holder transacting at same Bank channels) and off-us (Bank Customer/Rupay card holder transacting at other Bank Channels) within 90 days prior to date of accident including accident date will be included as eligible transactions under the Rupay Insurance Program 2016-2017. 10. Overdraft facility up to Rs.5000/- is available in only one account per household, preferably lady of the household.
- 5. 4 Performance Due to the preparations done in the run-up, as mentioned above, on the inauguration day, 1.5 Crore (15 million) bank accounts were opened. The Prime Minister said on this occasion- "Let us celebrate today as the day of financial freedom." By September 2014, 3.02 crore accounts were opened under the scheme, amongst Public sector banks, SBI had opened 30 lakh (3 million) accounts, followed by Punjab National Bank with 20.24 lakh (2 million) accounts, Canara Bank 16.21 lakh (1.62 million) accounts, Central Bank of India 15.98 lakh (1.59 million) accounts and Baroda with 14.22 lakh (1.42 million) accounts. It was reported that total of 7 Crore (70 million) bank accounts have been opened with deposits totaling more than ₹50 billion (US$740 million) as of 6 November 2014. As the government met the target, Union Finance Minister Arun Jaitley has revised the target for opening of bank accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY), the ambitious financial inclusion scheme launched by the government, from 7.5 crore to 10 crore by 26 January 2015. On 20 January 2015, the scheme entered into Guinness book of world records setting new record for 'The most bank accounts opened in one week'. The number of accounts opened under the scheme reached 219 million (including 57 million zero balance accounts) by 18 May 2016. The amount of deposits rose to ₹380.47 billion by April 2016. 19 lakh householders have availed the overdraft facility of ₹2.56 billion by May 2016. As per the 26.11.2016 status total account deposits balance is Rs.64250/- Uttar Pradesh and West Bengal have got 29% of the total deposits under the scheme, whereas Kerala and Goa became the first states in the country to provide one basic bank account to every household. The balance in Jan Dhan accounts rose by more than ₹270 billion (US$4.0 billion) between 9 November 2016 and 23 November 2016. PMJDY & KYC Documents which are required for opening PMJDY Pradhan Mantri Jan-Dhan Yojana accounts for the purpose of KYC norms are very simplified. Documentary requirement for KYC compliance in accounts opened under PMJDY is same as per extant guidelines of RBI/ Bank for saving accounts opened under Financial Inclusion. RBI has clarified the simplified KYC measures in its press release according to RBI Single document is enough for proof of identity and proof of address if the Officially Valid Document (OVD) has both identity and address details. RBI had clarified that there is no requirement of submitting two separate documents for proof of identity and proof of address. If the officially valid document submitted for opening a bank account has both, identity and address of the person, there is no need for submitting any other documentary proof. Officially valid documents (OVDs) for KYC purpose include: passport, driving license, voters' ID card, PAN card, Aadhaar letter
- 6. 5 issued by UIDAI and Job Card issued by NREGA signed by a State Government official. Migrant workers and transferred employees often face difficulties while submitting a proof of current address for opening a bank account, such customers can submit only one proof of address (either current or permanent) while opening a bank account or while undergoing periodic updation. If the current address is different from the address mentioned on the proof of address submitted by the customer, a simple declaration about current address would be sufficient. 2 Phase Implementation Phase 1: • Universal access to banking facilities for all households across the nation through: - Bank Mitra/Fixed Point Business Correspondent - Bank Branch • Access to banking facilities in areas within reasonable distance except areas with infrastructure and connectivity • Coverage of all households with minimum of one Basic Banking Account with RuPay Debit card with inbuilt accident insurance cover for INR 1 lakh • Overdraft of INR 5000 to Adhaar enabled accounts following 6 months operation • Financial literacy programme till village level • Expansion of DBT under numerous Government schemes through beneficiary’s bank accounts • Issuance of Kisan Credit Card/KCC as RuPay Kisan Card also covered under the plan
- 7. 6 Phase 2 • Provision of micro-insurance • Business correspondents to manage unorganized pension schemes such as Swavalamban • Yojana monitored in Mission Mode with FM as head • Coverage of 7.50 crore households under scheme with one account at least • Large number of dormant accounts to be activated • Enabling of electronic transfer of subsidies Benefits of PMJDY i. More Comprehensive Coverage • PMJDY focuses on coverage of households • Earlier schemes only focused on coverage of villages • Yojana covers both rural and urban areas • Earlier scheme targeted only villages with population able 2000;this means only 74000 villages of 5.92 lakh could be covered • PMJDY to cover banking facilities in each sub-service area of 1000-1500 households with reach of at least 5 km ii. Joint Account Facility iii. Convenience - The RuPay Debit Card or domestic debit card issued by NPCI or National Payment Corporation of India is accepted for cash withdrawal or cashless transactions at POS iv. Insurance Facilities • PMJDY provides accidental insurance cover up to INR 1 lakh without charge to customer • Life insurance cover of INR 30,000 v. Promotion of Financial Literacy • Banks to organize mega account opening camps in rural and urban areas in coordination with District Authorities • Special campaigns each Saturday from 8:00 am to 8:00 pm. • Households in urban as well as rural areas get access • Standardized financial literacy material prepared as part of vernacular languages • Special emphasis on monitoring
- 8. 7 vi. Digital Inclusion • Use of connectivity to boost people’s access to banking services • Accessing account with any type of mobile handset • Smartphones not needed • Balance enquiry and money transfer facilitated with normal handset too • Banking now possible with common mobile phones vii. Network Established • Platform created by NPCI connecting banks and telephone operators • Customer can access account from anywhere • Business Correspondent can also support cash deposit and withdrawal • Many PSU banks and leading Private Sector Banks already on network viii. Greater Inclusion • 11.5 bank crore accounts opened under Yojana currently • Target of 10 crore exceeded • 99.74% of households have bank accounts • More than INR 9000 crore deposited in Jan Dhan accounts • Providing banking services to the unbanked ix. Possibility to Double ATM Network • PMJDY may lead to doubling the network to 3 lakh machines in 2 years • Increase in cardholder base through additional RuPay debit cards • Credit card accepting devices new points of contact for PMJDY consumers x. Pecuniary Gains • Interest on deposit • No need for minimum balance • Easy money transfer • Government scheme beneficiaries get DBT in accounts • Access to Pension, Insurance Products xi. Women Empowerment - Overdraft facility up to INR 5000 available to ladies of the household xii. Expansion of Key Service Sectors
- 9. 8 • Banking sector will grow • Financial services sector will experience a resurgence • Insurance industry will be revived through more customers xiii. Targeted Beneficiaries with direct cash transfer xiv. Closing the Gaps-PMJDY will close the divide in the subsidy system ensuring transparency xv. Promoting Accountability • PMJDY will cut chances of black money accumulation and counter correuption • Remove influence of money lenders plus Ponzi schemes xvi. Offer Useful Econometrics and Measures of Growth • PMJDY will also enhance data collection and improve assessment xvii. Core Banking Platform • Will guard against duplication of accounts xviii. Move to Pull Based Reforms from Push based reforms xix. Efficient Implementation xx. Greater Focus on Fixed Point BCAs - Effective and Structured Monitoring xxi. Promotion of Technology • Bank account online • Linked to RuPay and mobile banking • Aadhaar enabled payment system used; promotes interoperability xxii. Good Customer Care • Free online help • Toll free customer care number xxiii. Effective Monitoring Mechanism • Mission Head-FM • Steering Committee-Secretary FS • Mission Director-Joint Secretary FI • State Level Implementation Committee • District Level Implementation Committee
- 10. 9 SWABHIMAAN (Old Financial Integration Plan) & PMJDY Swabhimaan is a campaign of the Government of India which aims to bring banking services to large rural areas. It was launched by Smt. Sonia Gandhi, the Chairperson of the United Progressive Alliance party in the presence of Shri Pranab Mukherjee, the Union Finance Minister and Shri Namo Narain Meena, the Union Minister of State for Finance on February 10, 2011. This campaign is to be operated by the Ministry of Finance, Government of India and the Indian Banks' Association (IBA) to bring banking within the reach of the masses of the Indian population. An initiative which seeks better financial inclusion within India will strive for rolling out banking services in 20,000 villages without banking services with a population of 2000 by March 2012 as to improve participation of rural folks in different plans launched by government for them. Under this plan, Banks will select business correspondents (bank saathi). They will act as intermediaries between the rural people and the banks. The government has targeted to cover at least 74,000 new habitations with a population of 2,000 and above and open at least 50 million new accounts by March 2012. The key idea is that there is need for village level presence – a customer-facing channel that is close to the customer preferably at a walking distance of not more than three to four kilometers. For this, it is important to have entities which are good at delivering outreach while operating in very difficult remote conditions. Besides giving access to banking, it also enables government subsidies and social security benefits to be directly credited to the accounts of the beneficiaries, enabling them to draw the money from the bank saathi or business correspondents in their village itself. Services Offered: Promises to bring basic banking services to unbanked villages with a population of >2000. The movement facilitates opening of banks accounts, provide need-based credit and remittance facilities besides helping in promoting financial literacy in rural India. The programme is aimed at increasing the demand for credit among the millions of small and marginal farmers and rural artisans who will benefit by having access to banking facilities. This financial inclusion campaign aims at providing branchless banking services through the use of technology. Banks provide basic services like deposits, withdrawals and remittances using the services of Business Correspondents (BCs) also known as Bank Saathi. The initiative also enables Government subsidies and social security benefits to now be directly credited to the accounts of the beneficiaries so that they could draw the money from the Business Correspondents (BCs) in their village itself. The Government hopes that the benefits of micro insurance and micro pension products reach the masses through this banking linkage. This programme now makes it possible for the large number of migrant workers in urban areas to remit money to their relatives in distant villages quickly and safely.
- 11. 10 The facilities provided through banking outlets will enhance social security by facilitating the availability of allied services in course of time like micro insurance, access to mutual funds, pensions, etc. Banking facilities like Savings Bank, recurring Deposits, fixed deposits, Remittances, Overdraft facility, Kisan Credit Card (KCCs), General Credit Cards (GCC) and collection of cheques will be provided. The Banks are also working together with the Unique Identification Authority of India (UIDAI) for enrolment, opening bank accounts and also to facilitate transfer of government subsidies and other payments.
- 12. 11 Swabhimaan PMJDY Villages with population greater than 2000 covered; thus limited geographical coverage Focus on household; Sub Service Area (SSA) for coverage of the whole country. Only rural Both rural and urban Bank Mitr (Business Correspondent) was visiting on fixed days only Fixed point Bank Mitr (Business Correspondent) in each SSA comprising of 1000-1500 households (3 to 4 villages on an average) to visit other villages in the SSA on fixed days Offline accounts opening - Technology lock-in with the vendor Only online accounts in the Bank Focus on account opening and large number of accounts remained dormant Account opening to be integrated with DBT, credit, insurance and pension Inter-operability of accounts was not there Inter-operability through RuPay Debit Card, AEPS etc. No use of Mobile Banking Mobile wallet and USSD based mobile banking to be utilized Cumbersome KYC formalities Simplified KYC/e-KYC in place as per RBI guidelines No guidelines on the remuneration of the Bank Mitr (Business Correspondent). Banks went generally with Corporate BCs who used to be least expensive to them Minimum remuneration of the Bank Mitr (Business Correspondent) to be ` 5000/-( Fixed + Variable) A recent RBI survey finds that 47% of Bank Mitr are untraceable Viability and sustainability of Bank Mitr (Business Correspondent) is identified as a critical component Monitoring left to banks Financial Inclusion campaign in Mission Mode with structured monitoring mechanism at Centre, State and District level Financial literacy had no focus The rural branches of banks to have a dedicated Financial Literacy Cell No active involvement of states / districts State level & District level monitoring committees to be set up No brand visibility of the Programme & Bank Mitr (Business Correspondent) Brand visibility for the programme & Bank Mitr (Business Correspondent) proposed
- 13. 12 DIGITIZATION AND PRADHAN MANTRI JAN DHAN YOJANA The Popularity of the PM’s Jan dhan yojana can be evaluated from the fact that it has been registered in Guinnees Book of World Records. To Add more to its benefits, the government has passed a provision of RuPay debit card. It can be seen as India’s answer to world’s top most transaction processing cards. Rupay is a new card payment scheme launched by the national payments corporation of India (NPCI). It has been conceived to fulfil RBIs vision to offer a domestic, open- loop, multilateral system which will allow all Indian banks and financial institutions in India to participate in electronic payments. It helps the user and the banks in the following way: a) Faster processing of transactions Since all the transactions will be taking place through domestic means within India, the processing will pace up. b) Lesser processing fee c) Cost `These cards are quite affordable, thus allowing the banking facility to reach remote villages. d) Acceptance in ATMs and other transaction Portals RuPay card is accepted widely in ATMs. Over 10,000 e-commerce sites allow the usage of this card e) Protection of Indian Citizen’s Privacy All the data related to the transaction history will reside in India only. f) No issues about quarterly Processing fee RuPay is issued by a government body that allows various banks to use its services without any extra quarterly processing fee. Providing credit facilities was not encouraged OD limit after satisfactory operations / credit history of 6 months
- 14. 13 Rupay KCC The Kisan credit card has emerged as an innovative credit delivery mechanism to meet the production credit requirements of the farmers in a timely and hassle free manner. Rupay has come out with its RuPay KCC offering, which leverages the benefits of both KCC and RuPay. Advantages of RuPay KCC a) Unlike VISA and Mastercard networks, Rupay does not charge an entry fee. b) It is well equipped to handle both the single message and dual messaging systems. c) It is a PIN based product, so it provides enhanced security. d) Unlike Normal KCC which serves only as an identity card and facilitate recording of transactions on an ongoing basis, RuPay KCC is actually a smart card that can be used at the nearest ATM/PoS for withdrawing cash. It removes the necessity of going to a bank branch to operate the account. Under Pradhan Mantri Jan Dhan Yojana, Rupay Debit card, with an inbuilt accidental insurance cover of Rs. 1 lakh is provided to account holders. One of the stipulation of meeting the claim under accidental death and/or permanent disablement was that the cardholder has to carry out at least one successful financial or non-financial transactions at a merchant establishment upto 45 days prior to the date of incident, resulting into accidental death/permanent disability. This condition was posing problems to RuPay Cardholders, and was thus changed to 90 days by National Payment corporation of India on being pursued by the former. When the scheme was officialy launched on 28th August, one feature that was included into the scheme provided 30,000 as life insurance cover for all the first time bank account holders, who open their accounts under Jan Dhan Yojana scheme. The LIC of India will provide the life cover. LIC has set up a separate fund to service the claims under this scheme through a special fund for the purpose which has an initial corpus of rs. 100 crore from social security fund. The premium to be charged initially under the scheme is subsidised from the social security fund. Pmjdy is not just about opening basic bank accounts to unbanked families but also about government expanding the current direct benefit transfer (DBT) programme so as to transfer subsidies of various welfare schemes directly to the PMJDY beneficiary’s bank accounts. It is expected that flow of such subsidy payments to the basic bank accounts of the unbanked families will in due course encourage bankers’ to focus energies on these accouts and even provide overdraft and other facilities.
- 15. 14 The new Financial inclusion mission also envisages expansion of Direct benefit transfer under various Government schemes through bank accounts of the beneficiaries of PMJDY. As on date, not all subsidy payments of the central government are credit directly to the beneficiary’s bank account. Many ministries make their payments through cheques or even sometimes by cash. With the financial inclusion being targeted by the government through jan dhan yojana, the government would be able to streamline its funding to the beneficiaries. Schemes such as direct benefit transfers (DBT) could be channelized. For example, funds could be directly transferred into the accounts of the beneficiaries under the programmes such as PAHAL, that aims to provide subsidized LPG cylinders. Similarly, beneficiaries could be targeted for scholarships, pensions, MNREGA Wages, food subsidies and other welfare programmes. It would help to curb leakages in the system. The reduction in the subsidy bill would discipline the fiscal deficit and the surplus could be better utilized in the other welfare public programmes. Also, the more the financial inclusion would be, the more the people would be taking the benefits of the banking facility. It would increase the savings rate and also provide alternative platforms to the people against the unorganized credit options. It would help increase in demand in the economy and thus more consumerism, more investment and thus more employment. CHALLENGES TO JAN DHAN SCHEME Governments in the past had also made various efforts towards financial inclusion like banking correspondents, bank saathi, opening of branches to the rural fringes. All of them were able to attain only partial success, even with jan dhan yojana the challenge is not only to quantify the connectivity but also the continuity in the transaction. The reserve bank warned the banks to be more careful while opening accounts under the jan dhan yojana, since a single individual could open multiple accounts in the lure of Rs. 1 lakh insurance cover. The banks should have a single information system by which this possible misuse could be addressed. In such a scenario, hawala operators would split the whole amount into several small units beyond the threshold using several bank accounts and send money overseas. Money mules by which an individual would operate through another person’s bank account. In the north-eastern region, the SLBs and the SLCCs should take steps to improve the credit-deposit ratio of the region as the CD ratio was much lower than the national average. The scheme can be a “waste” if it leads to duplication of accounts, if no transaction happens on the new accounts.
- 16. 15 Effect of PMJDY on Macroeconomic Indicators Each policy of Pradhan MantriJan Dhan Yojana affects one or more of following Macroeconomic indicators 1. Economic Growth 2. Economic Stability 3. Economic Inequality Creation of a financialinclusion tool which caters to every citizen of the Country-BoostEconomic Growth India as a country consisted of a big chunk of people who are forced to keep their money under the mattress because they don't have access to banks, or at best they convert it into gold and make a dead financial asset, which has zero economic value for them and the country. By 1 June 2016, over 22 crores (220 million) bank accounts were opened and ₹384.11 billion (US$5.7 billion) were deposited under the scheme. This money can be can be utilized for long-term economic use. This will boost economic growth. DirectTransferof Cash Benefits India is a country where most of the policies have been framed keeping in mind that the benefits will reach to the poorest of the poor people. For example, government could not deregulate the kerosene oil prices even after these many decades of self-rule because poor people still use kerosene and hence this needs to be kept under the custody of government and sell at subsidized rates. And this often backfires because the entire kerosene oil is usually hoarded and black-marketed to be used as an adulterant in Petrol and Diesel. Also government has to pay regularly to its NREGA workers. And the reality of the situation is that in the name of NREGA, there has been a corruption flood-gate opened to the government officials and babus. The laborers don't get entire money, a part of the payment goes into the pockets of babus and other officials. This can be eradicated if the money is transferred directly into the bank accounts of the laborers. To a great extent, this would mean that (at least) some of the 'open to all' subsidies are soon going to end. Meaning, everyone will have to purchase things at the deregulated market price and if one happens to be the one who should receive the subsidy benefit,
- 17. 16 will receive the money in his bank account. It will boost the grass-root economic status of the people. A step towards cash-lesstransactions Government generally can't put restrictions on cash transactions, the reason often cited is - poor people don't have bank account and hence they won't be able to purchase things if it’s not sold via cash. With the opening of bank accounts, cash transactions per day are going to decrease. Every year from now, one will need less cash to transact. Be it the local kirayana guys, or buying anything from houses to land to gold, everything will start moving to white money transactions. If transactions start to happen in white money more, prices of a lot of things would come under control. Thus if inflation is under control it will boost economic stability. Reduction in Black Money & Increases Transparent transactions 2 points that are going towards cashless economy and direct transfer of subsidy will lead to reduction in pilferages and corresponding decrease in black money. All the money remains in accountable form that will help in the growth of economy. Over draft facility and insurance scheme Now, that 22 Crore (220 million) accounts are opened under the Jan Dhan Yojna, government is in a very strategically strong position to incentivize the account holders to start transacting via these accounts. Accounts will be opened" with overdraft facility of RS5,000 (US$74) after six months and RuPay Debit card with inbuilt accident insurance cover of RS 1 lakh (US$1,500) and RuPay Kisan Card. Its impact on the microeconomics is going to be tremendous - a) A financial support mechanism for the poor's family after the death of the bread-winner, hitherto unknown in India; b) A dependable monthly financial mechanism for the aged population of this country; c) A tool to generate sustained demand-supply in the rural areas (by virtue of the pension money); d) A constant source of investment money for the government (by virtue of monthly premium payments by those scheme holders). Infrastructure Improvement As the government spending will increase , Infrastructure will improve in the country
- 18. 17 SHORTCOMINGS OF JAN DHAN YOJANA One of the most ambitious projects taken up by the central government of India in the year 2015 is the Jan Dhan Yojana. The scheme is actually aimed for opening bank accounts for all the inhabitants of India and also to remove the bank untouchability completely. It can be said to be a move towards the nation’s biggest financial achievement but at the same time, it has been reported that this Jan Dhan Yojana can cause different issues and challenges for both the individuals and government in the future. This scheme will make life of common people miserable in terms that now that every rupee earned & spend will be accounted & that will make poor people more poor & rich people richer. People who manipulate the economic system will always take advantage of this scheme. When people were paid in cash & managing their expenses in cash were still able to manage it, as there was clear understanding of net assets & liabilities but due to digitalization of economy & introduction of banking system now people are not aware of their net assets & liabilities due to inadequate education & understanding. This has lead of confusing situation for the common people. Their spending has gone more than their real earnings & debt traps has actually increased their burdens. As much as exposure to banking system, this will lead to commercialization of goods & services & rural finance system will abolished & pseudo economy is more visible, which results into breaking of customary home economy. Every things gets commercialized & common poor people falls prey to agents & so called facilitators / middle men. One of the major restrictions that PM Jan Dhan Yojana may approach across is the repossession & compilation of loans. The borrowers are principally going to be little amount borrowers & would often appear from unorganized sectors of civilization & occupation. It might be a little complicated for the banks & the system to remain a track of the borrowers & thus, they may finish up in defeats. It is however yet to observe how banks
- 19. 18 manage up with this opening & still be a foundation of the right economic modify, as desired by the Yojana. The Jan Dhan Yojana method is principally expressed at financially disqualified bank account controllers who do not take a bank account. The scheme aspires at ending the “Financial Untouchability” between the masses whom banks complete not interrelates with. By involving these prohibited people into the banking system, India’s PM Narendra Modi requests to decrease the gap among the haves & have not’s. A huge number of farmers, who are not properly educated, do not understand why the government wants to open the new bank accounts or how they are going to access the overdraft and many other facilities. This is undoubtedly a huge task and a lot of bankers feel that this project is going to drain a lot of resources of the already economically affected industry. There are a few points that are not in favor of the inhabitants of rural areas. For instance, the insurance coverages on the name of the account holder are linked with the transaction history of the account holder. People in rural areas in most of the times, do not have any major transaction records to show and this can inhibit the insurance coverages. There are a lot of instances that a huge number of accounts are just frozen because of no transactions since a lot of account users are there who are really poor to have the income of making bank transactions. And thus, the re-activation of old accounts takes several weeks or months. The number of accounts might increase in banks, but it cannot be said that there will be any increase in the number of transactions. False overdraft facility Coming to the “overdraft facility” factor, it needs to be mentioned that initially, while the opening of the bank accounts, it was mentioned that this facility meant, the government shall provide Rs 5000 in the newly opened bank accounts as a mark of subsidy. But this was not the scenario. The people who opened the new account did not get the overdraft or subsidy amount. Thus, this overdraft facility offered by the present government seems to be a false facility for a lot of people who have opened the account and this can be said to be a major reason, the Jan Dhan Yojana might fail. This scheme has a questionable
- 20. 19 viability of banking and insurance accounts. It can also be termed as priority versus freebies banking which will affect the banking system and economy as a whole. It is mostly a burden on the taxpayer. How can the scheme be moreeffective? The real challenge is of keeping the accounts alive, funding the overdraft mechanism and ensuring confusion over the insurance cover is resolved. The finance ministry should try to resolve the confusion created over the account-linked accident insurance the government has already announced. Other components of the Jan Dhan scheme too are yet to be fleshed out. Each of the new bank accounts is to come with a RuPay debit card, a Rs 5,000 overdraft facility, a Rs 1 lakh accident insurance and Rs 30,000 life insurance. Keeping these accounts running, the insurance-claim system functional, funneling money through cash transfer mechanisms and making the overdraft facilities financially viable will imply costs for different financial sector actors. Or, more likely, for these costs to be subsidized by the government. The immediate challenge for the government will be to figure out the financial viabil People may open multiple accounts using different ID proofs on the lure of getting insurance covers. It was said that on the first day itself, 1.5crore accounts were opened. However, many of the account holders already have a bank account. This problem is still persisting. Monitoring has to be done in this regard. All banks must have a centralised information sharing system so that this loophole can be countered. Another problem that can creep in is that people may be taking benefit of the same scheme under different accounts. This is possible especially when the customer uses different mode of self-verification, like, Adhaar Card to verify one account, election to verify another. Therefore, again, monitoring will play a key role to avoid such a loophole of the scheme. If verification is done using means other than the Adhaar Card, then, a
- 21. 20 follow up of the customer must be done in order to ensure that there are no dual benefits enjoyed by him/her. This can be done by mandating the customer to produce an Adhaar Card within a week of opening of his or her account. Infrastructure is also a big issue for efficient operation of the scheme. If a bank is being set up, it must be set up at a place with road connectivity and must be situated at the heart of the villages and towns, especially at areas where trade happens. This is because, for a bank to function for a longer period, other than the objectives of financial inclusion, it is necessary that the bank also fulfills its other purposes such that it is viable as well as profitable to operate in a given area. For this purpose, the bank must do location analysis before setting up a branch and may take help of outside professional experts in this regard. Infrastructure also leads to problem of internet connectivity particularly in hilly and tribal areas. For a successful launch of scheme, the speed of internet should also be faster. Therefore, the scheme has proposed setting up of committee with various stakeholders, one of them being BSNL. However, these problems need to be addressed in an urgent basis. There should be designated officers at the BSNL Offices at state looking after these problems. Till June 6 2014, apart from one no other private sector bank was issuing a RuPay card. The private sector banks have long term contracts with Visa and Master cards. ICICI Bank started issuing RuPay card for the said scheme. In order to avail insurance cover, RuPay card to be issued is a must. So, how is the private sector going to contribute such that the objective of financial inclusion is reached faster? The government should look into the matter. Also, otherwise too, the private sector banks have limited branches in the rural India. Many of the private sector bank like ICICI Bank (Though having the highest no. of rural
- 22. 21 branches among the private sector banks) are investing indirectly in the rural markets through Micro Finance Institutions. As there is no direct investment, the growth potential of the rural areas is still to be unlocked. If the private sector also contributes to the goal of 100% financial inclusion, the growth will be faster and it would fulfill the vision as seen by Honourable PM Narendra Modi, i.e., of “Sabka Saath, Sabka Vikas”! Bank Mitr has been given the responsibility of cash Deposits, withdrawals, providing loan facility etc. They would be provided with adequate infrastructure. These facilities should mobile such that the functioning of Bank Mitr should be at the doorsteps of the customers. Also, Bank Mitr should visit the customers very frequently as it would increase the amount of transactions taken by the customer. It would encourage savings, using banking facilities and help them feel part of the financial system of the country. Even if it is a zero balance account, credibility of the account holder has to be checked. The Overdraft facility to the account holder may turn into a sub-standard or Non- Performing Asset for the banker. Thus, credit should be made available by the banker only after due diligence and not by just going by the scheme. The financial literacy centre is to be held by the banker so as to keep customer aware of the services available and when and how to use them and to keep them updated of the new financial products available to her/him. At the first financial literacy campaign, there should be compulsory attendence for all those whom the banker feels should attend the programme. These classes taken by the banker should be held frequently. In the earlier reports prepared by the Convener of State Level Banker’s Committee, all the Conveners prepared a different structure of report. There was no uniformity. At many banker’s reports such as J& K and Delhi State Level Banker’s Committee Report, the targets were not specified. Therefore, at Central level, there could be ambiguity in understanding these different reports. To ensure smooth monitoring of the progress
- 23. 22 made, there should be standardization of the reports to be submitted by the banks in prescribed format. This matter has been looked upon by devising a structured system generated MIS system. Dates should be set for the banks to give updates on its progress in its endeavor for financial inclusion.