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.