1. Editorial: Making Jan-Dhan viable

Editorial: Making Jan-Dhan viable

As DBT spreads, the accounts will become viable

By: | Published: August 31, 2015 12:21 AM

RBI Governor Raghuram Rajan is right when he said, in the RBI Annual Report, that the government needed to compensate public sector banks for undertaking ‘public interest activities’. PSU banks have, based on the Prime Minister’s exhortation, opened a total of 17.7 crore bank accounts under the Pradhan Mantri Jan-Dhan Yojana. Since banks would probably not have opened these accounts under the normal course—the account-holders typically don’t have enough balances to justify the costs of opening the account—it is only fair that banks be compensated for this. According to the Indian Banks’ Association, it costs around Rs 140 to open each account, implying that PSU banks have spent around R2,500 crore to meet a government diktat.

While it is not clear if the banks are going to be compensated for this, the plan was to make the accounts self-financing, and not to remain a burden, unlike most of the earlier ‘no-frills accounts’ that PSU banks were forced to open. The DBT scheme was the key to this. Right now, the central government alone spends around Rs 3 lakh crore a year on various social security schemes. If physical transfers—like PDS rations—are replaced with cash transfers to these accounts, they will become viable immediately. Whether it takes one or two years to get DBT going for all social security schemes is unclear—and that also depends upon the Supreme Court’s view on Aadhaar—but banks will earn a substantial sum from having R3 lakh crore in the till once this is done. According to Kotak Institutional Equities, a fourth of the 98 crore bank accounts in the country are bare-basic ones that have just R31,000 crore of deposits in them—that’s a mere 1.5% of the total deposits base in the country. Compared to this, when direct transfers are working as per plan, the Jan-Dhan accounts will be quite lucrative for banks. And if the government decides to pay a commission on these transfers—the Nandan Nilekani-led taskforce on this had suggested a 3.14% commission since banks would also need to pay commissions to the banking correspondents—that will be in addition to what they will earn from the till.

According to a government press release on the first anniversary of the Jan-Dhan Yojana, good progress has already been made. While these bank accounts already have deposits of over Rs 22,000 crore, over 40% of them have also been seeded with Aadhaar, and are therefore ready for DBT. Some progress has already been made on putting money in through the banking system via LPG subsidies—and the government is planning pilot schemes for PDS as well. Which is why the number of zero-balance accounts has fallen from 76% on September 2014 to under 46% already—indeed, more than 1 million have been found eligible for availing of a Rs 5,000 overdraft facility as well. For a one-year old programme, that’s an impressive start. And while Governor Rajan is correct in asking the government to compensate banks for undertaking public interest activities, Jan-Dhan may turn out to be a profitable activity for banks—provided the DBT scheme proceeds on schedule.

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  1. Hemen Parekh
    Aug 31, 2015 at 5:06 pm
    Jan Dhan Sarjan Yojana You have heard that the : > Jan Dhan Yojana completed one year on 28 Aug 2015 > By creating some 17.5 crore accounts during this period , it became , " World's largest financial inclusion " scheme > There was no need to have a minimum " Bank Balance " to open account > Zero bank balance accounts declined from 76% to 45% in last year > Bank Overdraft of Rs 5000 allowed after 6 months > Of 10 lakhs a/c qualifying for overdraft , 1.65 lakh have used it By all accounts , this Yojana ( Scheme ) is all set to bring about a revolution in the matter of financial transactions of the poor people of India Especially thru the use of RuPay Debit cards , every time these poor buy any goods or services from a local " Kirana " shop ( except that 99.99 % of these small local shops don't have card-readers ! ) In the meantime , there are a few other " Game Changing " revolutions shaping up These are : > RBI permissions to some 20 Organizations to start " Payment Banks " ( Including Mobile Service Providers / India Post / PayTM etc ) > Launch of a large number of " Hyper Local " e-commerce firms which deliver goods / services to local residents, placing orders thru mobile apps > Launch of quite a few " Mobile Wallet " apps, tied up with no of banks and millions of small shop-keepers , all over the country > Last - and most important - expected launch of GST in April 2016 Can we seize this opportunity to " Synergize " these parallel changes ? It seems , not only possible , but outright essential ! By launching , Jan Dhan Sarjan Yojana ( People's Wealth Creation Scheme ) As follows : > If GST is going to be ( say ) 20 % , Government will transfer from this , 2 % ( ie 10 % of that 20 % ) , to the PPF account of the Consumer / Buyer , who pays for the Goods / Services purchased , using a RuPay Card or a " Mobile Wallet " app This will motivate millions of self - emplo to open PPF accounts ! > Since interest from a PPF account is tax-free , every citizen would , now want to make all payments thru RuPay card of a Mobile Wallet App > RuPay cards are already tied up with accounts opened under Jan Dhan Yojana > Mobile Wallets Apps will also get tied-up with thousands of branches of Payment Banks , which will open in next 18 months Just imagine the number of new accounts that will get opened in the 1,55,000 post offices of India Post ! > In this way , Social Security will become " Self Financing " ! > Currently , in India , some 97 % of all payments are " Cash Payments ". With introduction of this proposal , these will drastically decline > Any payment made , using RuPay card or a Mobile Wallet App , will make available to the Income Tax Department , full digitized record of each such transaction , including : * Who made the payment * To whom was that payment made * When was that payment made * For what purchase , was that payment made * What was the amount paid > One , very desirable consequence of Jan Dhan Sarjan Yojana will be that our " Domestic Savings Rate " will climb back to 30 % ! In turn , this will help us wither global economic crisis , much better ! I have a feeling that my proposal will be welcomed by all sections of our Society and find overwhelming support for the ping of the GST bill by all political parties ------------------------------------------------------------------------------------- hemen parekh 31 August 2015 B2BmessageBlaster
    1. P
      Aug 31, 2015 at 10:02 am
      It is high time government proceeded in transferring cash under PDS instead of food grains.

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