Prime Minister Narendra Modi will be launching the Pradhan Mantri Jan Dhan Yojna today, a plan he announced in his Independence Day speech, to provide 100 crore Indians with bank accounts. While the speed at which it was executed is worth an applause, it will be interesting to see whether it will succeed. As of mid-2013 just half of the Indian population had bank accounts. The number has not improved much. But with this scheme the number of Indians with bank accounts might increase drastically.
The government plans to provide 100 crore Indians with a Bank account that comes with a RuPay debit card and Rs 1 Lakh accident cover. The bank account will be credited with all the subsidies with Direct Bank Transfers and the account holders under PMJDY scheme will be facilitated with overdraft facility up to Rs 5,000 for their Aadhar-linked accounts. The scheme will be launched in two phases with the first phase ending in August 2015 and the second phase starting from 2015 to 2018. Pension Schemes and Micro-insurance are part of that phase.
This is not the first time that an idea aiming to provide Bank accounts for everyone has been executed. The central bank had introduced ‘no-frills’ accounts in 2005 to provide basic banking facilities to poor and promote financial inclusion. The accounts could be maintained without or with very low minimum balance. But bank branches were few and far away in rural areas. Hence, most accounts were made but few were used.
While it is a good idea to have a bank account for every Indian one still wonders how, or rather why, will the poorest of the poor save their meagre incomes in the banks. Apart from giving direct bank transfers to Aadhaar-linked accounts there is not much use for the bank accounts. With a small income it is difficult to even have food for all the members of the family, saving money is a far fetched thought.
The Modi government is planning to increase the penetration of bank branches in the rural area. 7,000 branches will be made over the first phase. But here is the catch. As of 2012, India’s six largest cities had 11 per cent of the country’s bank branches, while there were four districts in north-India with just one branch per district. The possibility of the 7000 branches being introduced in most of these areas is very small.
Earlier this year, the RBI accepted one of the major recommendations by the Nachiket Mor committee. Payment Banks were introduced, based on the suggestion by those committees. While these banks can accept deposits and handle remittances, they cannot have their own treasury operations. They have to invest their deposits in government securities. This made the transaction more secure as the banks cannot play with the depositor’s money.
This might possibly be a better move than giving conventional bank accounts to the low-income depositors but with the Jan Dhan Yojna, the two are in conflict, as reported by Economic Times. But as the author says, Indian Banking system evolves and adapts to the changes introduced. Whether the new system will work will only be known later.
The government plans to provide 100 crore Indians with a Bank account that comes with a RuPay debit card and Rs 1 Lakh accident cover. The bank account will be credited with all the subsidies with Direct Bank Transfers and the account holders under PMJDY scheme will be facilitated with overdraft facility up to Rs 5,000 for their Aadhar-linked accounts. The scheme will be launched in two phases with the first phase ending in August 2015 and the second phase starting from 2015 to 2018. Pension Schemes and Micro-insurance are part of that phase.
This is not the first time that an idea aiming to provide Bank accounts for everyone has been executed. The central bank had introduced ‘no-frills’ accounts in 2005 to provide basic banking facilities to poor and promote financial inclusion. The accounts could be maintained without or with very low minimum balance. But bank branches were few and far away in rural areas. Hence, most accounts were made but few were used.
While it is a good idea to have a bank account for every Indian one still wonders how, or rather why, will the poorest of the poor save their meagre incomes in the banks. Apart from giving direct bank transfers to Aadhaar-linked accounts there is not much use for the bank accounts. With a small income it is difficult to even have food for all the members of the family, saving money is a far fetched thought.
The Modi government is planning to increase the penetration of bank branches in the rural area. 7,000 branches will be made over the first phase. But here is the catch. As of 2012, India’s six largest cities had 11 per cent of the country’s bank branches, while there were four districts in north-India with just one branch per district. The possibility of the 7000 branches being introduced in most of these areas is very small.
Earlier this year, the RBI accepted one of the major recommendations by the Nachiket Mor committee. Payment Banks were introduced, based on the suggestion by those committees. While these banks can accept deposits and handle remittances, they cannot have their own treasury operations. They have to invest their deposits in government securities. This made the transaction more secure as the banks cannot play with the depositor’s money.
This might possibly be a better move than giving conventional bank accounts to the low-income depositors but with the Jan Dhan Yojna, the two are in conflict, as reported by Economic Times. But as the author says, Indian Banking system evolves and adapts to the changes introduced. Whether the new system will work will only be known later.
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