Economics
Jan Dhan Yojana
Lack of financial inclusion in India:
Only 59%
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Of
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50%
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Of the bank accounts are not operated at all. Most probably those accounts opened part of MNREGA and other campaigns
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~ 46, 000
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Villages have bank branches (total villages are above 6 lakh)
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3.3 lakh
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Villages have Banking Correspondent Agents (BCA). But this model is failure.
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34%
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Is the average loan interest charged by local moneylenders
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55%
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Of Rural Dalit families have to borrow money from local money lenders
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24%
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Is the average loan-interest charged by private microfinance institutions
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It doesn’t mean Government and RBI haven’t nothing. Since independence, they have launched many initiatives for financial inclusion- Bank Nationalization, Regional Rural banks, cooperative banks, Banking correspondence agent, Swabhiman, Swavlamban, Microfinance, No-frills account, 25% rural branch rule, Bharatiya Mahila Bank and so on.
PMJDY - Salient Features:
Who
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Department of Financial Services under Finance Ministry
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When
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Aug 15, 2014
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Purpose
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Financial Inclusion
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Target
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Open bank accounts for 7.5 crore families in one year (revised to 10 crore families by Jan 26, 2015)
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Motto
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My Account is Divine
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Phase 1: Three pillars (2014 to 2015, 15th August)
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Service Area
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Country will be divided into sub-service areas (SSA)
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Each SSA will cover 1000-1500 households
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Each household will have a banking outlet within 5 km distance
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Account
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Each household will have atleast one bank account.
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Even minors of 10 years and above age, can open.
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With a Rupay debit card
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Rs. 1 lakh accident cover per account. Conditions:
* 1 individual and multiple bank accounts = still maximum 1 lakh cover
* 1 family, husband-wife separate accounts= each gets 1 lakh cover.
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If you open account before 26th January 2015, you’ll get additional Rs.30,000 life insurance cover.
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If your good credit history for first 6 months=>Rs.5,000 overdraft facility. If same family has multiple accounts then only 1 account gets this benefit- first preference to woman’s account.
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Literacy
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Financial literacy programmes to make people aware of benefits of saving and investing money properly.
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Phase 2: Next Three pillars (2015 to 2018)
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CGF
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Credit guarantee fund- to cover losses in overdrafts. (Because some villagers might use overdraft for desi liquor and then default in repayment)
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Insurance
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If JDY account holder is interested, he can buy micro insurance product
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DBT
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Earlier Government launched Swavalamban Yojana to make unorganized sector workers join NPS scheme.
Those people will get NPS-pension directly in these Jan-Dhan accounts.
Government will also try for direct benefit transfer (DBT) i.e. sending scheme-subsidy money directly to beneficiaries’ jan-dhan accounts.
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How to open Jan Dhan account?
· If you already have a bank account, no need to apply again. Just get a “RuPay” debit card, and you get automatically enrolled into this system.
· Jan Dhan accounts are put under Core Banking solution (CBS) platform, therefore it can be transferred from one branch to another, as per your request.
· If you don’t have any account, open a new account with any one of the following documents: Aadhar Voters card, Driving licenses, PAN, Passport etc.
Small account
· If a person doesn’t have any official documents, still bank can open its account- with just his photo and signature.
· But such account will be called “Small account”. RBI has put following restrictions on them
Ø not more than 1 lakh rupee loan per year
Ø cannot withdraw more than 10,000 rupees per month.
Ø cannot deposit more than 50,000 rupees in account
Ø Valid for 12 month only
Jan-Dhan Yojana - Benefits, Pro-Arguments:
· Will aid financial inclusion, will rescue villagers from the clutches of evil money lenders.
· Could boost household savings rate similar to Bank Nationalization in 1960s.
· Direct Benefit transfer (DBT) money will flow into those accounts (and from there again as “loans” to other needy people.) Thus savings will turn into capital. Subsidy leakage will decline.
· Will increase Insurance penetration.
· Overdraft only after monitoring performance => win-win, rare chances of NPA/defaults.
Jan-Dhan Yojana - Criticism / Anti-Arguments:
· Prime Minister’s Jan Dhan Yojana (PMJDY) will fail because
(01) Multiple accounts to get more insurance
Raghuram Rajan is concerned that:
· Jan Dhan scheme gives Rs. 1 lakh insurance on each account.
· To get large insurance or overdraft facility, same person might open multiple accounts in multiple banks- one with Aadhar card, one with PAN card, one with voters card.
· Government banks may also overlook nuisance, in order to meet their ‘targets’. Recall the PJ Nayak Committee. Since Government is the majority shareholder in government banks=> Chairman and board of directors have pressure from Government => they pressurize bank staffs to enroll maximum bank accounts so that Modi can brag about it during his Madison
· RBI suggestion: banks should establish a single information sharing system to weed out such multiple accounts.
· Counter argument: State bank of India
(02) Money laundering
· Raghuram Rajan is also worried that JDY accounts could be used for money laundering and Hawala operations.
Smurfing
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Hawala Operators can spilt the whole amount (say 1 crore) into several small units into several JDY accounts
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Then send money overseas without coming under the watchful eyes of Income tax or Enforcement directorate
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Money mules
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Just like those “Drug mules” who ingest condom packed with narcotic drugs and deliver it to other country via airplanes.
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Money mules= individuals with JDY accounts, who facilitate Hawala operators to send money via their account.
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Insurance ‘robbers’
· Jan Dhan gives free accident insurance cover worth Rs.1 lakh.
· But there is a secret condition - you must use RuPay debit card atleast once every 45 days.
· This is not possible for poor families in remote tribal areas. So, they’ll lose the benefit due to inactivity.
Why this secret condition?
· Because insurance money doesn’t fall from sky. Even if getting it for free, still someone has to pay the premium, right? In this case, Modi is not paying the premium. (Because he wants to keep fiscal deficit low).
· Premium is paid by NPCI (National Payments Corporation of India
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