Sunday, February 1, 2015

The Govt's plan for Jan Dhan Yojana

On Jan 21st the national and private banks released data to the Government as to how many accounts have been opened under the Pradhan Mantri Jan Dhan Yojana. The figures stood at 115 million. The numbers immediately were recorded in the Guinness World Record (Gusiness site confirming the same). This was because in a short term of 7 months banks were pushed on an aggressive drive to involve people into the banking system. The target was 75 million to be achieved before Jan 26, 2015. The reality far exceeded the expectations.

The Modi government pushed guaranteed wages for every bank correspondent who reaches out to rural and far flung areas to open bank accounts, something the UPA Government did not guarantee. Even though this system started under UPA, the banking targets were never made aggressive nor attractive for banks. The focus of the UPA initiative was covering villages, but PM Modi wanted covering households so money could be transferred to from the perspective of "households". In addition to ensure people find this scheme attractive announced a) Upon satisfactory running of the account for 6 months will get Rs.5000 overdraft facility b) RuPay Debit Card that can be used anywhere across the country c) Rs. 1 lakh accident insurance cover.  Personally, Modi wrote an email to all bank officers across the country (source of the email). Some statements in that email are below:

We need to enroll over 7 crore households and open their accounts. This is a national priority and we must rise to meet this challenge. There is an urgency to this exercise as all other development activities are hindered by this single disability. I am sure we will overcome this situation collectively. 

put your shoulder to the wheel and try your level best to ensure that no one is left without a bank account. This itself will be a source of immense satisfaction for you and your teams. I will myself recognize the achievements of the best performing branches.

If one carefully analyzes how this scheme was launched, pushed and target achieved it is very clear that Modi believes in achieving things with a "corporate style" of win-win. For close to 40 years despite bank nationalization bank penetration has been so low especially in rural areas. Now, things are so drastically different.

Let's look at some basic numbers based on Census of India 2011 (Source).Using some numbers of the Census and Jan Dhan Yojana I made this table below.

When you add existing 243 million to 116 million it covers more than 90% of India as far as number of households under the banking ambit.

Based on the numbers above it is very clear no where in the world with a population as huge as India's banking has penetrated so quickly. Of these 116 million, 83 million have zero balance. This is mainly because the Jan Dhan Yojana allows you to maintain it and still get an accidental coverage insurance.  Now, imagine if the government begins to transfer money to these accounts via banks using Electronic Credit? It will probably be the most transparent way of ensuring money reaches instantly and effectively. With a near complete wipe out of middlemen and citizens facing hassles to get their own money, it will be a tremendous change of benefit flow in the country. The main concern is duplication of accounts and benefits. The government will soon announce AADHAR to be linked to these bank accounts to avail benefits. Once that is done the number of duplicate accounts for the benefits will reduce. Let's assume for a moment that of these 116 million even if 20 million accounts are duplicates the number still is huge and can help plug leakages of nearly Rs.50,000 crore every year [SOURCE] which is a huge amount. Imagine if such a huge sum of money is flowed through proper channels?

The government has already started LPG Subsidy transfers. The amount being transferred is about 650 Crore rupees every year right now. The customer pays market price and the difference between subsidized and market price goes to the consumer's account holder directly. The LPG distribution agencies have already made it mandatory for one household to link their unique LPG account number to a bank account in turn linked with AADHAR or a bank account not linked to AADHAR. As recently as Jan 31st 97.5 million customers (64% of population using LPG) are already connected to the system under PAHAL (Pratyaksha Hastaantarit Laabh) . Regarding complaints as per numbers available Livemint reports 1.09 lakh (0.1% of transactions) and 85% has been resolved (source).

The government now would target 27 schemes including Pension, Rural Employment Wages, Scholarship and many more through these Bank Accounts.

The government has already issued memos and circulars for 14 Departments to be digitally ready to disburse money of various schemes such as Crop insurance, fishermen's welfare scheme, artists' pension, social security fund for the unorganized sector, grants for women's self-help groups, health insurance for sterilization programmes, scholarships and assistance for the disabled, cash transfer for girl children, cash awards for sportspersons

The next things to be in the pipeline are kerosene, food and fertilizer subsidy. When all of these subsidies flow it is believed it will become the world's largest electronic and direct benefit transfer in the world. These subsidies run into millions of dollars. 

Recently, Tehelka did report that several bank representatives were not helpful enough and friendly enough in this initiative. However, no scheme of this magnitude can ever be defect free.  These defects or loopholes must not stop the initiative from being used to the very purpose it was initiated.

Over 20 Indian and foreign companies have already agreed to support the mechanism of any payment gateway or help in scaling the transactions associated with such a huge scale of bank accounts. 

In its truest sense banking would really be part of everyone's lives when there are more ATM's to draw money, more bank branches where one can visit and do transactions not possible to do in an ATM. 

Does anyone have ideas how this scheme could be made even better?

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