Pradhan Mantri Jan Dhan Yojana As an Instrument of Financial Inclusion: a Review

AEGAEUM JOURNAL ISSN NO: 0776-3808

Pradhan Mantri Jan Dhan Yojana as an Instrument of Financial Inclusion: A Review

Subha Kumar Das Department of Commerce, Gauhati University [email protected]

Abstract - Financial inclusion means the delivery of financial services at an affordable cost to all sections of the society which are disadvantaged and those who fall in the low income segments of the society. One of the main reasons of backwardness of the different sections of our society can be attributed to the lack of access to basic financial systems. The formal financial sectors have not been able to reach the poorer sections of the society especially in the villages. The Prime Minister’s Jan Dhan Yojana is a step taken forward towards the financial inclusion program and is an effort to bring the unbanked sections of our society directly under the formal banking system.This paper highlights the process through which this scheme has been implemented and to what extent it has been able to cover the targeted sections in India. This paper also tries to highlight the implications of this scheme and the challenges and issues regarding this scheme.

Keywords : Financial inclusion, Pradhan Mantri Jan Dhan Yojana, formal banking system.

1. INTRODUCTION

Prime Minister, Shree Narendra Modi announced the Pradhan Mantri Jan Dhan Yojana or the Prime Minister ‘Scheme for people’s wealth’- an ambitious scheme for comprehensive financial inclusion on his first Independence Day speech on 15 th August, 2014.This Mission enabled all households, urban andrural to gain easy and universal access to financialservices. The scheme is a financial inclusion scheme covering all households in the country with banking facilities, ensuring a bank account for each household. The scheme was formally launched on 28 th August, 2014 with a target to provide universal access to banking facilities starting with Basic Banking Account with an overdraft facility of Rs. 5,000 after six months. This limit has been increased to Rs 10,000 w.e.f. 14.08.2018 and RuPay Debit Card with inbuilt accident insurance cover of Rs. 1,00,000 which has been increased to Rs 2,00,000 for cards issued after 28.08.18 and a RuPay Kisan Card. Those people who opened their bank accounts before 26 th January, 2015 gained an additional benefit of Rs. 30,000 life insurance. The beneficiaries who already have bank accounts are also eligible to get these benefits. With a bank account, every household would gain access to banking and credit facilities. This enabled them to come out of the grip of moneylenders and manage to keep away from financial crises caused by emergent needs, and most importantly, benefit from a range of financial products. The main reason for the introduction of this scheme is to eradicate the problem of ‘financial untouchability',that is, to include those people who have not come under the domain of formal financial sector of the country. Financial inclusion or inclusive financing is the delivery of financial services at an affordable cost to the disadvantaged sections of the society. The formal financial sectors have not been able to reach the poorer sections of the society especially in the villages. The Prime Minister’s Jan Dhan Yojana is a step taken forward towards the financial inclusion to reach out to those people who have no formal bank accounts. 2. REVIEW OF LITERATURE Razi (2014) highlighted the main issues regarding this scheme and had drawn out the main points as to why financial addition is necessary for the development of our country. Patel (2014) considered that this scheme provides social security through insurance cover and pension payment and this is a very significant one because there are not even elementary social security covers for a very large number of poor households and is a blessing for the daily wage earners. Sahoo (2014) emphasised on the fact that to complete the mammoth task of providing bank accounts to 75 million households, the banks should improve their infrastructure facilities because the existing bank branches are not enough. The banks need to extend their branches to the interior villages so that 1

Volume 8, Issue 9, 2020 http://aegaeum.com/ Page No: 1361 AEGAEUM JOURNAL ISSN NO: 0776-3808

rural households can access the facilities and increase the number of ATMs. Kaur and Singh (2015) argued that setting up of biometric ATMs in rural areas for the catering to the needs of illiterate people will help these people avail the facilities along with new recruits from the local areas because the local people can relate to someone from their own area and who can understand their problems more properly. There are certain writers who feel that the scheme Jan Dhan Yojana is an improvement over the other such schemes those were started before Jan Dhan Yojana. Razi (2014) believed that the Pradhan Mantri Jan Dhan Yojana is a significant improvement over the UPA government’s financial inclusion programme. The previous scheme had no focus on households and the Know Your Customer norms were also very restricting. Patel (2014) is also of the view that this scheme is more effective than previous schemes because this scheme targets households instead of villages, covers both rural and urban areas as against rural ones and has also given importance to technology . Borman and Kashyap (2019) have found in their study that environmental factors play a positive role in enhancing financial capability of beneficiaries under Pradhan Mantri Jan Dhan Yojana (PMJDY). It is seen that it can act as barrier as well as enabler in building an individual’s financial capability as environmental factors are the most vital factors among all the factors of financial capability. With the help of PMJDY account people are getting the various benefits of Government schemes like Ujjala Yojana, Pradhan Mantri Kisan Pension Yojana, Suknya Samriddhi Yojana, Pradhan Mantri Jeevan Jyoti BimaYojana, Pradhan Mantri Surakshya Bima Yojana, Kisan Samman Nidhi, Ayushman Bharat Yojana directly in their bank account. It is a great step towards making the people of the society financially stable and strong.

3. OBJECTIVES

The main objectives of this paper are pointed out as follows:

• To study theimplementation of this scheme. • To understand the current scenario of financial inclusion. • To study the implications of the scheme. • To highlight the necessary issues and challenges of this scheme.

4. SOURCES OF DATA COLLECTION The study is based on secondary data which has been collected from the Government journals, newspaper articles, magazines, banks web sources.

5. FINDINGS FROM THE STUDY 5.1 Implementation of the scheme

The main objective of PMJDY is inclusive growth - “Sab ke sath, Sab ka Vikash”. This program enables all households, both rural and urban to gain easy access to formal financial services, especially the weaker and the neglected sections of our society who are dependent on informal sources like the money lenders to meet their short and long term needs. Under this program, the households of our country have access directly to the formal financial sectors. The households not only have bank accounts but also access to credit for economic activity, insurance and pension schemes. The PMJDY was implemented in two phases-

Volume 8, Issue 9, 2020 http://aegaeum.com/ Page No: 1362 AEGAEUM JOURNAL ISSN NO: 0776-3808

• In the first phase, 15 th August, 2014 to 14 th August, 2015, all households were covered with at least one basic bank account and routing of subsidies to such accounts under Direct Benefit Transfer (DBT) scheme. The total number of accounts opened in the first phase is shown in the following table:

Table 1 Number of accounts opened under PMJDY during PHASE-I Sl Types of No. Of accounts opened No. Of RuPay Balance in No. Of No. Banks (in crores) Debit cards( in accounts(in accounts Rural Urban Total crores) crores) with 0 balance( in crores) 1 Public Sector 5.33 4.51 9.84 9.12 Rs. 817463.04 6.55 2 Regional 1.84 0.32 2.17 1.49 Rs. 159948.08 1.59 Rural 3 Private Sector 0.32 0.20 0.52 0.45 Rs. 72551.50 0.30 Total 7.50 5.05 12.54 11.07 Rs. 1049962.62 8.44 Source: www.pmjdy.gov.in

In the second phase, 15 th August, 2015 to 14 th August, 2016, insurance cover was provided and payment of pension under the ‘Swavalamban’ scheme through business correspondents (BCs)was also done.The total number of accounts opened in the second phase is shown in the following table:

Table 2 Number of accounts opened under PMJDY during PHASE-II Sl Types of No. Of accounts opened No. Of RuPay Balance in No. Of No. Banks (in crores) Debit cards( in accounts(in accounts Rural Urban Total crores) crores) with 0 balance( in crores) 1 Public Sector 9.22 7.30 16.53 14.08 Rs. 26094.05 29.41 2 Regional 3.199 .53 3.72 2.67 Rs. 5756.44 24.50 Rural 3 Private Sector .45 .30 .75 .71 Rs. 1224.40 38.87 Total 12.87 8.13 21.00 17.46 Rs. 33074.89 28.88 Source: www.pmjdy.gov.in

This scheme is implemented with the help of the following six pillars:

5.1.1 Universal access to banking facilities: The six lakhs villages across the entire countrywas mapped into Sub Service Area(SSAs) catering to 1000-1500 households in a manner that every habitation had access to banking services within a reasonable distance of about 5 km by 14 th August, 2015. Coverage of parts of J&K, Himachal Pradesh, Uttarakhand, North East and the Left Wing Extremism affected districts 3

Volume 8, Issue 9, 2020 http://aegaeum.com/ Page No: 1363 AEGAEUM JOURNAL ISSN NO: 0776-3808

which had telecom connectivity and infrastructure constraints were moved over to the Phase II of the program (15 th August, 2015 to 15 th August, 2016). 5.1.2 Providing Basic Banking Accounts with overdraft facility and RuPay Debit card to all households: The effort was to first cover 6 crores uncovered households in the rural areas and 1.5 crores urban uncovered households with banking facilities by 15 th August, 2015 by opening basic bank accounts. Account holder were provided a RuPay Debit Card. Facility of an overdraft of Rs. 5,000 and an accidental insurance benefit upto Rs. 1,00,00 to every basic banking account holder was considered after satisfactory operation / credit history of six months. 5.1.3 Financial Literacy and Credit Counselling (FLCC) Programme: Financial literacy was an integral part of the Mission in order to let the beneficiaries make best use of the financial services being made available to them. The Financial Literacy Centres were set up in the rural areas with aims to expand the FLCCs to the block level creation of a financial literacy cell in all rural branches and provide basic literacy about the banks. 5.1.4 Creation of Credit Guarantee Fund: Creation of a Credit Guarantee Fund to give comfort to banks to provide overdraft limit and to bring in discipline in the monitoring mechanism to cover the defaults in overdraft accounts. 5.1.5 Micro-Insurance: The ‘BankMitre’ mechanism was enabled to offer micro- insurance products and policies to promote insurance coverage among the economically vulnerable sections of the society by 14 th August, 2018 5.1.6 Unorganized sector Pension schemes like Swavalamban: To encourage workers in the unorganized sectors save voluntarily for their old age, an initiative called ‘Swavalamban Scheme’ was launched wherein the Central Government would contribute a sum of Rs. 1,000 per annum in National Pension Scheme accounts. The plan proposes to channel all benefits to the beneficiaries and pushing the Direct Benefit Transfer (DBT) scheme of the Union Government including restarting the DBT in LPG scheme through these bank accounts.

5.2 Current Scenario of Financial Inclusion under PMJDY The PMJDY scheme was implemented in the month of August in 2014.The following tables show the number of accounts opened upto August2014 and August 2020 under PMJDY.

Table 3 Number of accounts opened under PMJDY on August, 2014 Sl Types of No. Of accounts opened No. Of RuPay Balance in No. Of No. Banks (in crores) Debit cards( in accounts(in accounts Rural Urban Total crores) crores) with 0 balance( in crores) 1 Public Sector 3.58 3.00 6.58 4.74 Rs. 5,149.70 4.89 2 Regional 1.18 0.21 1.39 0.19 Rs. 902.26 1.07 Rural 3 Private Sector 0.10 0.11 0.21 0.12 Rs. 361.76 0.14 Total 4.86 3.32 8.19 5.06 Rs. 6,413.74 6.11

Volume 8, Issue 9, 2020 http://aegaeum.com/ Page No: 1364 AEGAEUM JOURNAL ISSN NO: 0776-3808

Table 4 Number of accounts opened under PMJDYon August, 2020 Sl Types of No. Of Beneficiaries No. Of RuPay Balance in accounts(in No. Banks (in crores) Debit cards( in crores) Rural Urban Total crores)

1 Public Sector 19.76 12.50 32.26 25.64 100361.97 2 Regional 6.26 0.92 7.17 3.19 25390.76 Rural 3 Private Sector .70 0.57 1.26 1.15 3955.18 Total 26.66 13.97 40.70 29.98 129707.91 Source: www.pmjdy.gov.in

From above tables 3 and 4 it is seen that the maximum number of accounts were opened in the Public sector banks at the total of 32.26 crore accounts, followed by Regional Rural Banks((RRBs) at 7.17 crore accounts and at Private sector banks 1.26 crore accounts were opened as on 31.08.2020.

The target under PMJDY is for banks to have an additional 50,000 BCs, in addition to 7,000 more branches and 20,000 new ATMs. Also to make the dormant accounts (estimated at around 5 crore) active, the government may soon announce that dormant account holders, if found eligible, will get subsidies and other payments related to DBT as well as the National Rural Employment Guarantee Scheme directly into their accounts if these accounts are activated. The number of accounts with zero- balance is highest at public sector bank at 4.89 crore accounts. The RRBs also have a huge amount of zero balance accounts, 1.07 crore accounts.Banking Correspondents (BCs) have been deployed in 1.26 lakh Sub Service Areas (rural areas), each catering to 1000-1500 households. Nearly 13.16 crore Aadhar Enabled Payment System (AePS) transactions have taken place through BCs during the month of July, 2018.

Of the accounts opened at public sector banks (PSBs) under the Jan Dhan Yojana, 71% are zero- balance, against 64% for private banks. Among private lenders, the percentage of ‘zero-balance’ Jan Dhan accounts at Yes Bank is 89%, Kotak Mahindra Bank is 77% and Axis Bank is 75%. Among PSBs, 95% of State Bank of India’s Jan Dhan accounts are zero-balance, for Indian Overseas bank, it stands at 84%.

Of the bank accounts opened under the scheme, about 9 million were at PSBs, while private banks accounted for only 4.1 million accounts (3.6 per cent of the overall number). The rest were accounted for by RRBs. 0.9 million accounts have been opened under this scheme by the five major private lenders – ICICI bank, Kotak Mahindra Bank, YES Bank, IndusInd Bank and Karur Vaisya Bank.

With such a huge % of bank accounts with zero-balance, will financial inclusion really take place? The answer is yes. Because these accounts are linked with the direct cash transfer scheme for government payments, including subsidies. According to statistics available, LPG subsidy payments estimated currently at Rs. 25,000-30,000 crores annually are getting routed compulsorily through bank accounts. 50% of the 16 crores LPG consumers are already linked through bank accounts. According to the ‘Economic Times’ “the government has already disbursed Rs. 6,688.98 crores to 8.03 crore LPG customers up to 14 th January, 2015 and the figures are expected to go up to Rs 25,000- Rs 30,000 crores annually.” Once LPG is done, the next obvious target will be kerosene, where current subsidies could be in a similar range of Rs. 25,000-30,000 crores.The other big scheme to use bank accounts will be the Mahatma Gandhi Rural Employment Guarantee Scheme (NREGA), which has an outlay of Rs. 33,000 crores annually. Rs. 15,000 croreshave already started flowing through the bank accounts. The PMJDY will gradually take the figure closer to 100 percent over the next year or two. 5

Volume 8, Issue 9, 2020 http://aegaeum.com/ Page No: 1365 AEGAEUM JOURNAL ISSN NO: 0776-3808

According to Business Line, funds for three pension schemes (Rs. 9,690 crore), 24 scholarship schemes (Rs. 5,756 crores) and seven other schemes (Rs. 2,583 crores) are also being routed through bank accounts. The next subsidy payments will be food and fertiliser subsidies, which have outlays of Rs. 1,15,000 crores and Rs. 72,970 crores respectively. PMJDY will ensure that the subsidy flows to the poor. Thereis a huge potential flow of government subsidies in the range of nearly Rs. 2,90,000 crores.If even a third of this subsidies flows through the Jan Dhan accounts, that’s a significant volume of nearly Rs 1,00,000 crores.More than 7.5 crore Jan Dhan accounts receiving DBTs. 13.98 crore subscribers under Pradhan Mantri Suraksha Bima Yojana (PMSBY) with 19,436 claims, involving an amount of Rs. 388.72 crore settled so far. Similarly, 5.47 crore subscribers under Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) with 1.10 lakh claims, involving an amount of Rs. 2206.28 crore settled so far. 1.11 crore persons have subscribed for Atal Pension Yojana (APY).

5.3 Implications of the scheme

5.3.1 DBT(Direct Benefit Transfer): The most important advantage of the Jan Dhan Yojana is the direct transfer of benefits of the various schemes of the government like LPG subsidy, pension, unemployment loans etc. The welfare transfers payments through these accounts rule out the possibility of these accounts lying unused or dormant. This will help prevent leakage of subsidies. Besides, when government payments flow in, beneficiaries would be impelled to use the accounts for withdrawal and even personal deposits. The Government’s proposal to route cash transfers instead of subsidies in kind through these accounts would be a step towards a comprehensive reform of the subsidy regime. 5.3.2 Simplification of the rules: The scheme is targeted at those who have never had a bank account in their lives. The scheme has simplified the whole process of opening an account in the bank. The KYC (know-your customer) rules to open a bank account have been simplified. The only document required is either AADHAR card, voter’s identity card, driving license, PAN card. For those who do not have any of the above mentioned documents identity proofs, a small account could be opened with a self- attested photograph along signature or thumb impressions in the presence of the bank official. But even after much simplification of the rules to open a bank account, some people could not access it. The solution to this problem may lie in the door step services. 5.3.3 Overdraft Facilities: The bank account holders with RuPay debit cards are also eligible for an overdraft facility of Rs. 5,000 (Rs10,000 w.e.f. 2018) based on their performance during the first six months of their opening the account. This amount can be used bypeople from rural areas who take loan from creditlenders who charge heavy interest along with property etc. in their control or in case of any emergency overdraft facility can be availed. But many economists are questioning the viability of this scheme as these overdraft facilities will be availed largely by the poor people. How will they be able to pay back this amount? Who will take the responsibility? The people may not be wilful defaulters but if they do not have a source of repayment than this might cause a problem. 5.3.4 Insurance Cover: All those people who have opened a bank account under this scheme would be eligible for an accident insurance cover of Rs 1,00,000 (Rs 2,00,000 w.e.f 2018) and an additional amount of Rs. 30,000 if the bank accounts are opened between 28 th August, 2014 and 26 th January, 2015. According to the guideline, Rs. 30,000 life insurance cover will be limited to just one account holder per family. “The person should be the head of the family or an earning member of the family. The beneficiary will have to exit the insurance cover at the age of 60 years and the cover at present is only for 5 years after which it will be reviewed. There are certain

Volume 8, Issue 9, 2020 http://aegaeum.com/ Page No: 1366 AEGAEUM JOURNAL ISSN NO: 0776-3808

sections which have been excluded from this insurance cover. The Central and State Government employees, whose income is taxable and those people who are included in the AABY covering 48 occupations and their families will be excluded from this scheme. 5.3.5 Subprime Lending:Subprime lending means making loans to people who may have difficulty maintaining the repayment schedule, sometimes reflecting set back, such as unemployment, medical emergencies, etc. Raghuram Rajan has warned banks against giving subprime lending but there is a debate in recent times against Prime Minister Narendra Modi that he is forcing the banks to exactly do the same.

5.4 Challenges and Issues

The challenges faced by the Government in effective implementation of the scheme include:

• Poor telecom connectivity and lack of infrastructure in tribal and hilly areas and left wing extremism have posed a big challenge in the mission of 100% coverage of households in the country. • Duplication and dormant accounts are creating a lot of problems in Direct Benefit Transfers. • Private Banks are not highly motivated from the scheme because increased salary of BCs and other operational costs associated with the scheme are very high in comparison of the earnings from the float money. • Credit facility without the assessment of credit worthiness will be the challenge for the creation of Credit Guarantee Fund. • People of villages who have transferred to the metropolitan cities to earn their livelihood do not have any documents to show. This makes it tough for them to get benefit from PMJDY.

5.5 Highlights of the scheme • Universal access to banking facilities for all households through a bank branch or a fixed point business correspondent called “Bank Mitra”. • Platform has been built by the National Payment Corporation of India that connects all banks and all telephone networks in the country. • All the rural, semi-rural and urban areas of the country are proposed to be mapped into Sub Service Area comprising 1000-1500 households with an average of 3-4 villages. • The implementation strategy of the plan is to utilize the existing bank infrastructure as well as expand the same to cover all households. While the existing banking network would be fully geared up, new branches will also be opened. • Mobile banking for the poor would be available through National Unified USSD Platform(NUUP) for which all the bank and mobile companies have come together.

5.6 Policy Recommendations • PSBs and RRBs are not contributing satisfactorily in the success of PMJDY hence some monetary motivation and counselling is required to be given to motivate them. • Most of the banks do not have any system of checking duplication of accounts. Some measures are required to control the duplication of accounts so that the benefits can go to the needy one. • Connectivity and infrastructure are the big issues in an effective implementation of the scheme. The Government is required to give due focus on making them available. • Life insurance cover is available only upto the age of 60 years. It may be reviewed and extended for whole life to serve the purpose of giving social security.

Volume 8, Issue 9, 2020 http://aegaeum.com/ Page No: 1367 AEGAEUM JOURNAL ISSN NO: 0776-3808

• Credit facility is available to only one account per household. It should be given to all account holders without any exclusion on the basis of their worthiness. • Earlier scheme ‘Swabhimaan’ is criticized because of lack of financial literacy. Now Government is required to establish adequate number of Financial Literacy Centres (FLC) and Mechanism to facilitate branding and awareness on ‘Bank Mitra’, and Financial Literacy and Credit Counselling (FLCC) programs for the success of the scheme.

6. CONCLUSION

The Pradhan Mantri Jan Dhan Yojana is a big step taken towards including all the people of the country under the umbrella of formal banking sector. In a country where only 35% of the adults had access to formal bank account and only 8% of the people borrowed from the formal financial institutions on 2012, the task of opening an account for 75 million households is a great initiative on Narendra Modi’s part. On the day of the launch of the program, 15 million accounts were opened. The provision of basic accounts with in-built insurance coverage, debit card facilities, etc. to the unbanked will positively benefit the poor households. This scheme will surely help to reduce the poverty level. There are certain issues which need to be reviewed for better effectiveness of the program. The monitoring systemshould work more efficiently to make financial inclusion effective so that our country is free from the clutches of poverty.

REFERENCES

[1] G.H. Barhate and R. Jagpat, “Pradhan Mantri Jan Dhan Yojana:National Mission on Financial Inclusion”, Indian Journal of Applied Research, vol. 4, no.12, (2014), pp. 340-342.

[2] H. Kaur, and K. N. Singh, “Pradhan Mantri Jan Dhan Yojana:A Leap towards Financial Inclusion in India”, International Journal of Emerging Research in Management and Technology, vol. 4, no.1, (2014), pp. 25-29.

[3] A. Patel, “Pradhan Mantri Jan Dhan Yojana: Financial Inclusion & Economic Activity A Key to Success”, Kurukshetra, vol. 63, no.1, (2014), pp. 7-12.

[4] B.C.M. Patnaik, I. Satpathy and A.C Supkar, “Pradhan Mantri Jan Dhan Yojana- A New Direction for Mainstreaming the Financially Excluded”, International Journal of Management, vol.6, no.2, ( 2015), pp.31-42.

[5] S. Razi, “Jan Dhan Yojana- National Mission on Financial Inclusion”, Kurukshetra, vol.63, no.1, (2014), pp. 3-6.

[6] P. Sahoo, “Roadmap to Financial Inclusion: Pradhan Mantri Jan Dhan Yojana”, Yojana, (October, 2014), pp.30-34.

[7] “Pradhan Mantri Jan Dhan Yojana- Roadmap”, Kurukshetra, vol. 63, no. 1, (2014) pp. 13-16.

[8] R. Borman and T. Kashyap, "Role of Environmental Factors in Enhancing Financial Capability of Beneficiaries under PMJDY of Assam Gramin Vikash Bank of Nalbari District of Assam", International Journal of Recent Technology and Engineering, vol. 8, no. 4, (2019) , pp. 12919- 12923

Volume 8, Issue 9, 2020 http://aegaeum.com/ Page No: 1368