The Jan-Dhan seeks to demolish the barrier that exists in accessing the organised channels of finance by opening hassle free accounts for the poor.
The Jan-Dhan scheme and the NREGA programme have a lot of commonality. Both of them are conceptually very sound, where the former offers access to financial products for the lower income groups, the latter provides employment to the needy. By having this scheme run primarily between harvests a farmer will have access to income throughout the year. The Jan-Dhan seeks to demolish the barrier that exists in accessing the organised channels of finance by opening hassle free accounts for the poor. On the downside, the two schemes run the risk of almost all government schemes in the area of implementation.
The recent controversy over bankers putting money in the accounts of individuals registered under Jan-Dhan is important for two reasons that go beyond such an act. First, it questions the premises on which this model is built and second, it sounds an alarm for the new players in the fray for banking on the potential scope of business. Now, based on the authenticity of the perception that bankers have been depositing their own money to show non-zero balance accounts, if there are rules which prohibit bankers from doing so then it would be a case to be taken up with the concerned bank. But, the act is still reflective of the problems we have with almost all our development schemes.
We have a situation where there are stiff targets set for all bankers to open more Jan-Dhan accounts. It does look like that there has been a top down approach, as public sector banks (including RRBs) dominate with a share of 96% of the total Jan-Dhan accounts that have been opened so far. Being owned by the government, in a way there is legitimacy in asking employees to meet the targets. Hence, after bank accounts are opened, the next task is to ensure that there are less zero-balance accounts. This becomes a challenge for the banks. Getting 240 million accounts opened in two years’ time is a major achievement. But to get the same people to have balances is even more daunting. It is not surprising that these accounts have zero-balances as often accounts have been opened in fictitious names or by persons who already have accounts and do not find use to keep balances.
Jan-Dhan has concentrated on opening accounts and evidently bankers have been pressurised to do so. It may be recollected that inclusive banking has been on the agenda for several decades and commercial banks are spread across the country. Yet, these many accounts were not opened. RBI data indicates that as of March 2015, 35% of the deposit accounts were rural but contributed to just 10% of the total deposits, while the metro centres had a share of 53% covering 20% of the total number of accounts. If one agrees that the PSBs have done a very good job so far in banking, then the limited penetration is more due to the awareness of the concept as well as the fact that people do not have money to put in the banks.
Quite interestingly, the Socio Economic and Caste Census of 2015 shows that out of the 17.91 crore rural households, 8.69 crore i.e. 49% were suffering from deprivation. Intuitively, such households would not be having much money to spend on consumption and would barely be living on the threshold of survival. Expecting such households to have deposits is laudable—the banks can open them. But for such households parting with money is almost impossible. Further, the census talks of there being 9.20 crore (which would overlap with the deprived class) households dependent on manual labour, which again offers little scope for having income that can be saved.
This issue is symptomatic of all government schemes where targets are set and have to be met. We, hence, have thousands of toilets being established with few users. There are schools created with various allocations which have no benches for students or teachers. Hospital structures are established with few doctors and bed; and where they exist, the quality remains pathetic. The banking scenario resembles the same with accounts being created with limited potential for usage. In fact, non-zero-balance is one way of evaluating the use of a bank account. More important, is the repeated use of the account to deposit and withdraw money.
Ideally, such grandiose schemes should start with an awareness campaign where the public should be educated of the use of a bank account and the concept of savings. By not doing so and forcibly opening accounts, they would tend to remain unused until the habit develops. The model used by the stock and commodity markets can be borrowed here, where the exchanges continuously carry out these programmes to educate the people about investing in their products along with the caution that must be exercised. The same has to be done by banks in running advertisements and outreach campaigns. Channelling NREGA payments is one way which has been used effectively by the government, which is commendable. Otherwise, this programme will always lead to surplus capacities being created which will increase the cost for banks as these involve a cost for opening account, issuing a card and maintaining the same.
The other implication is for the new banks that are going to get operational soon. The payments and small banks should be concerned with this development as their model involves to a large extent the same accounts which Jan-Dhan has targeted. If conventional banking is not the preferred choice for the majority of the rural folk, either because of awareness or absence of funds, then these new business models have to reach out in an effective manner to create their balance sheets.
In a way it is good that this issue has come up now as it does cause us to pause and reflect. Just like how there is serious debate going on the NREGA programme to improve the return from the wage which is paid, the same must be considered on the issue of these no-frills account to make them useful. This process of introspection and redress is evolutionary and essential so that the returns from such programmes move towards the optimal level.
The author is chief economist, CARE Ratings. Views are personal