Sai Om Journal of Commerce & Management A Peer Reviewed National Journal

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1 Volume 3, Issue 3 (March, 2016) Online ISSN Published by: Sai Om Publications HOW TO BRING PMJDY ACCOUNT FOR TRANSACTIONS AND REDUCE ZERO BALANCE ACCOUNTS- A STUDY Dhanasekaran Perumalsamy Chief Manager, Union Bank of India, India dhanasekaranubi@gmail.com ABSTRACT Financial inclusion is given importance by the Govt. of India, since nationalization of commercial Banks, considering the need to include the entire population in economic growth of the country. The Govt. of India and RBI has taken number of measures in this to achieve 100% inclusion of the unbanked/ under banked population. It is a challenging task considering the geographical spread, population growth, illiteracy, under development of infrastructure, under development of technology etc., The Scheme Pradhan Mandri Jan Dhan Yojana (PMJDY) was launched on as a national mission for financial inclusion. The efforts of every stake holder has set record in Guinness Book as The most bank accounts opened in 1 week as a part of financial inclusion is 1,80,96,130 and was achieved by Banks in India from 23 to 29 August In spite of this achievement the zero balance account is the concern in achieving financial inclusion in real sense. So this paper is an attempt to find the issues and strategies in increasing the number of transactions and to reduce the number of zero balance accounts under PMJDY scheme. Keywords: Financial Inclusion; PMJDY; Financial Literacy; BC; Technology; Aadhaar; Biometric; Jan Dhan INTRODUCTION The growth of the country s economy depends on the growth of the financial sector. The use of financial services by most of the population decides the financial sector s growth. But a sizable population particularly poor, low income and vulnerable group are not utilizing the financial services provided by the financial sector. Hence inclusive growth is essential for the growth of the economy. Macroeconomic evidence suggests that economies with deeper financial intermediation tend to grow faster and reduce income inequality (Beck et al. 2007) According to the committee on Financial Inclusion, Financial inclusion is the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost. In India financially excluded class comprises largely of small/ marginal farmers, landless laborers, oral lessees, self employed in unorganized sector enterprises, urban slum dwellers, migrants ethnic minorities, socially excluded groups, senior citizens and women. In 2014, over 50% of Indian adults held an account with a financial institution, compared to close to 70% of adults in various BRICS economies, and an even higher percentages of adults in the US and UK. OBJECTIVES 1. To identify the strategies to be followed for increasing the number of transactions in the accounts and thus convert zero balance accounts to accounts with sizable balance. Available online on 29

2 2. To find out the suitable methods to be adopted to reduce the zero balance accounts. 3. To identify and suggest the use of digital banking products to increase the transactions and outstanding balance in the accounts under the scheme, to convert all zero balance accounts under PMJDY to accounts with balances. PMJDY Features PMJDY scheme under financial inclusion, was launched on , is National Mission for Financial Inclusion to ensure access to financial services, namely, Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner. Account can be opened in any bank branch or BC (Bank Mitra) outlet. PMJDY accounts are being opened with Zero balance. However, if the account-holder wishes to get cheque book, he/she will have to fulfill minimum balance criteria. Special Benefits under PMJDY Scheme are 1. Interest on deposit. 2. Accidental insurance cover of Rs.1.00 lac 3. No minimum balance required. 4. Life insurance cover of Rs.30,000/- 5. Easy Transfer of money across India 6. Beneficiaries of Government Schemes will get Direct Benefit Transfer in these accounts. 7. After satisfactory operation of the account for 6 months, an overdraft facility will be permitted 8. Access to Pension, insurance products. 9. Accidental Insurance Cover, RuPay Debit Card must be used at least once in 90 days. 10. Overdraft facility upto Rs.5000/- is available in only one account per household, preferably lady of the household. Objective of PMJDY is ensuring access to various financial services like availability of basic savings bank account, access to need based credit, remittances facility, insurance and pension to the excluded sections i.e. weaker sections & low income groups. This deep penetration at affordable cost is possible only with effective use of technology. Vision of PMJDY envisages universal access to banking services and products with at least one banking account for every household in the country. PMJDY was conceived with a view to provide comprehensive and inclusive growth. It facilitates freedom from local and expensive money lenders. PMJDY provided the toll free call centre to facilitate the beneficiaries. The efforts of everyone involved in the scheme, specifically Banks made the scheme recognized by Guinness World Records as The most bank accounts opened in 1 week as a part of financial inclusion is 1,80,96,130 and was achieved by Banks in India from 23 to 29 August The table 1 shows the details about PMJDY accounts opened as on : VOL. 3, ISSUE 3 (March 2016) 30

3 Bank Name Table 1. PMJDY accounts opened as on ( Figures in Crores) RURAL URBAN TOTAL RUPAY CARDS (No) AADHAAR SEEDED BALANCE o/s ZERO- BALANCE ACCOUNTS (%) PSBs RRBs Pvt.Banks Total Source: In spite of the achievement, the zero balance accounts and poor number / lack of transactions in the accounts under this scheme has been a botheration for every Bank, including our Bank. Chart 1. Trend of Zero Balance Accounts Under PMJDY-(All)(Figures in %) To make the accounts financially viable for the Bank, the transactions need to be increased and the zero balance accounts should be reduced by way of active participation by the customers. A sizable average balance in these accounts will increase the CASA % of the Bank substantially. This can be achieved through: 1. Increasing the Financial Literacy 2. Providing affordable Credit Facilities 3. Use of Technology 4. Use of BCs 5. Customer Service and Complaint redressal Financial Literacy The customer under PMJDY scheme has various problems like illiteracy, low income, non easy access to branch, not having awareness about Banking products. Hence there is a need to create awareness among the customers about the importance of saving and proper utilization of credit facilities. This is possible through enabling financial literacy and credit counseling to the customers. VOL. 3, ISSUE 3 (March 2016) 31

4 Providing Credit Facilities The rural and urban poor shy away from banking transactions due to not having money to transact in the account. Hence institutional credit to be made available to them to meet their productive and consumption needs without becoming prey to the high cost involved local money lenders. The following table shows the details of overdraft facility sanctioned/ disbursed under PMJDY scheme as on Table 2. Report on OVERDRAFT (Sanctioned/Disbursed) under PMJDY as on Tot No Accounts Offered For OD Tot No Accounts OD Sanctioned Tot No Accounts OD Availed Amt. Tot OD Availed (In Lacs) Rs Bank Name Tot No Accounts Tot No Accounts Tot No Accounts Offered For OD OD Sanctioned OD Availed Allahabad Bank Andhra Bank Axis Bank Ltd Bank of Baroda Bank of India Bank of Maharashtra Amt. Tot OD Availed (In Lacs) Bhartiya Mahila Bank Canara Bank Central Bank of India City Union Bank Ltd Corporation Bank Dena Bank Federal Bank Ltd HDFC Bank Ltd ICICI Bank Ltd IDBI Bank Ltd Indian Bank Indian Overseas Bank IndusInd Bank Ltd Jammu & Kashmir Bank Ltd Karur Vysya Bank Ltd Kotak Mahindra Bank Ltd Lakshmi Vilas Bank Ltd Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Ratnakar Bank Ltd South Indian Bank Ltd VOL. 3, ISSUE 3 (March 2016) 32

5 State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of India State Bank of Mysore State Bank of Patiala State Bank of Travancore Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank Grand Total Source: Use of Technology Technology plays important role in bringing the PMJDY accounts under transactions. JAM Jandhan, Aadhaar and Mobile is going to play important role to enable the transactions in PMJDY accounts. Use of Business Correspondents (BCS) BCs are called as Bank Mitras. The main focus of PMJDY is to cover all the unbanked households of the country so as to provide them with the universal access to banking facilities. In the Urban and Rural areas where opening of a brick and mortar branch / ATM is not viable, Banks have engaged BC Agents/Bank Mitras (BCAs/BMs) for providing the banking services. The outlets of BC Agents /Bank Mitras in both rural and urban areas are fully equipped with the infrastructure required for delivery of banking services like account opening, cash deposit,withdrawal, fund transfer(remittances).they also provide the insurance and pension related services. These services are delivered through biometric authentication and using Rupay ATM/ Debit cards swiping with PINs. During the week ended on 9th September 2015, BCAs/BMs did cash (Receipt +Payments) transactions, BCAs/BMs did Remittances and total 1.20 Crore transactions were done by the BCAs/BMs. Table 3. Position of Bank Mitra Infrastructure Report as on Source: VOL. 3, ISSUE 3 (March 2016) 33

6 Customer Service and Complaint Redressal The beneficiaries of PMJDY account holders to be converted as clients in a commercial sense and customer service to be improved. Financial inclusion to be made us a profitable business. There is need to launch new products in tune with the financial requirement of clients as clients no more can be taken for granted. A structured needs analysis, client profiling will make the banks understand the clients in terms of their products requirements. The prompt redressal of complaints will bring trust on Banking transactions. Hence importance to be given to redress the complaints in time. PMJDY Challenges Less Number of Branches in Rural Areas- The number of branches per 1,00,000 of population in rural and semi-urban areas is less than half of that in urban and metropolitan areas. This limits the branch banking access as limited to the customers of rural and semi-urban centres. Uneven Distribution of Branches- Eastern, north-eastern and central regions of our country are having less number of branches when compared to other regions, due to lack of infrastructure facilities Lack of Infrastructure- Poor infrastructure in many parts of the country inhibits the development process. It is important there are adequate road, rail, digital connectivity and adequate power and infrastructure facilities which are important prerequisites for operation of a banking outlet. Gender Gap- Over time ( ), the number of accounts per thousand of population has increased. But the account density for female has more than tripled, these numbers are far lower than the account density of males. Table 6. Individual Savings Bank Account of SCBs Female Population Total female population No of female s savings bank accounts per thousand of female population Rural female Total female population population Amount outstanding per female s savings bank account (in thousand) Year Minimum among states/ UTs Maximum among states/ UTs Median of States/ UTs All India Source: RBI report (2015), Report of the Committee on Medium-term Path on Financial Inclusion December Illiteracy- The illiteracy is in higher level in case of rural poor, urban poor, weaker sections of society and the women. This makes bringing them under banking facilities difficult because of the need to understand the financial transactions. Low Income- The rural and urban poor find it difficult to use the banking facilities because they lake money which is needed for transaction. The socio-economic caste census 2011 reveals that more than half of the rural households depend on manual casual labour and another 30% depend on cultivation for their livelihood. VOL. 3, ISSUE 3 (March 2016) 34

7 The main income earning member of around three fourth of rural households earns less than Rs5,000 per month. Only 8% of rural households earn more than Rs10,000 per month. Of 138 million agriculture landholders, 67% are marginal farmers and on average they operate on 0.39 hectare, which implies that the income earned from agriculture produce to the majority of agricultural households is very low. Reliance On Non-Institutional Credit- The data by All India Debit and Investment Survey (AIDIS) show that the reliance on non-institutional credit agencies by rural households was as high as 44% in Table 7. Percentage distribution of households cash loans outstanding by credit agency Credit Agency Rural Urban Institutional Agencies w/w Co-operative society/ Bank Commercial bank, including RRBs Non-Institutional Agencies w/w Professional Moneylenders Relatives and Friends Total Source: RBI report (2015), Report of the Committee on Medium-term Path on Financial Inclusion December As of 2014, 6% of Indian adults had borrowed from a formal financial institution in the past 12 months compared with more than 10% or more in other BRICS economies. Lack of ATM Facility- As of 2014, there were only 18 ATMs per 1,00,000 adult population in India against over 65 in South Africa and over 180 in Russia. In 2014, only 10% of individuals aged 15 years and above made payments through debit cards in India against approximately 40% in South Africa. Over 60% of Kenya s adult population had received domestic remittances compared with less than 10% in India. Cost Involved In Banking Transactions- The nature of the transaction in case of financial inclusion is of low value and large volume transactions. This leads to increase in cost of transaction. Low End Mobile Phones- Most of the customers are not having the smart phone. They are having only the basic feature phone which may not support all banking products. PMJDY - Opportunities Branch Expansion RBI has initiated the following measures recently to facilitate financial inclusion: Introduction of Business Facilitators (BFs) Introduction of BCs Deregulation of opening of Branches & ATMs Relaxations in the BC Model to bridge the last mile problem. Introduction of Basic Saving Bank Deposit Account (BSBDA) Introduction of Basic Saving Bank Deposit Account Small (BSBDS) VOL. 3, ISSUE 3 (March 2016) 35

8 As on March This accelerated the pace of branch opening, with more branches being opened in rural and semi-urban areas and this is evident as per the following table. Rural + Semiurban Number of Branches Urban + Metro Table 8. Branch expansion of SCBs Total Rural + Semiurban Estimated Population (in million) Urban + Metro Total Rural + Semiurban Branches / population Urban Total + Metro June Source: RBI report (2015), Report of the Committee on Medium-term Path on Financial Inclusion December SB Accounts in Semi-Urban and Rural Branches Concurrent with higher branch expansion in semi-urban and rural areas, the compound annual growth rate (CAGR) for both the number of individual saving bank deposit accounts as well as deposit amounts outstanding therein was the highest for semi-urban regions followed by rural, urban and metropolitan regions. Table 9. Growth in Individual s Saving Bank Deposit Accounts with SCBs Population Group Number of individual Saving Bank Deposits Accounts (million) Individual Saving Bank Deposits Amount Outstanding (Rs. Billion) CAGR (%) CAGR (%) Rural Semi-urban Urban Metro All India Source: RBI report (2015), Report of the Committee on Medium-term Path on Financial Inclusion December Credit Growth In Rural And Semi-Urban Areas- In addition to the increase in deposit account penetration in rural and semi-urban areas, the number of credit accounts and the outstanding amount in credit accounts of the commercial banks in rural and semi-urban areas has increased during the period Mobile Penetration- As per the Census 2011 data, the proportion of households availing banking services has increased 59 % in 2011 from 35 % in It also indicates that 59% of households possess mobile phones. Basic banking services can be delivered at low cost through mobile technology and the security of transaction can be enhanced through biometric identification through Aadhaar. Hence delivery of low cost financial services is possible through JAM (Jandhan, Aadhaar & Mobile) vision of Govt. of India. VOL. 3, ISSUE 3 (March 2016) 36

9 One of the major reasons for the slow progress in providing banking services in FI is the high transaction costs associated with the low value large volume transactions. Technology can to a large extent reduce the cost of transactions. Despite significant technological advancement there are issues of standardization, inter-operability and costs that inhibit smooth technology solutions. The financial services offered with the help of ICT (Information and Communication Technologies) should ideally be standardized, inter-operable and cost effective. Financial Products- Simple products rather than sophisticated instruments are required at affordable cost for the people. Flexibility is an important criterion and the products and services available should be flexible. Participative Efforts- It is important that all the participative stakeholders work together to achieve the goal of financial inclusion. Banks, State Governments, Technology providers, Regulators and other developmental agencies need to work together in tandem to drive the efforts towards achieving total financial inclusion. Delivery Models- Efforts need to be taken to identify best delivery models/ business models for financial inclusion. The typical brick and mortar bank branches may not be feasible in all villages because of viability and other reasons. Banks have to adopt all delivery models like satellite branches, mobile branches, BCs/ POS and mobile banking services. Business Correspondents (BCs)- The BCs in rural areas get lower income. Many of them quit after a few months in the Job. As the BCs of one Bank is allowed to serve the customers of other Banks, their remuneration, which will support the FI. For serving customers the BCs have to take cash from the nearest branch. It leads to cash management issues and security issues. Technological compatibility is an issue between the software of the BCs and Banks. Compatibility of POS machines handled by BCs with various Banks through NPCI is the solution. Aadhaar enabled payment system (AEPS) enabled POS machines can be operated by BCs for authentication of payment transactions and to ensure security. GPRS enabled mobile POS device combined with smart card, finger print recognition can provide real time transactions and receipt printing to build trust on BC model and to provide security. SUGGESTIONS Technology: ATM ATM- screen display in regional language supported by audio in regional language Installing biometric ATMs in rural areas will make the transactions through ATM as easy, sage and attractive to the customers. ATM to be supportive of contactless transactions (NFC-Near Field Communication) & Debit card also to be NFC enabled Loyalty programme may be introduced for use of ATMs Loyalty programme for Debit cards to be advertised to reach the rural areas Performance of rupay card to be improved. It should be enabled for hassle-free ecommerce payments & POS transactions. Micro ATMs to be installed to reduce the capital cost with less number of ATM hits. Opening up POS (Point of Sale) which are basically non-financial entities for banking transactions will result in increase in transactions. VOL. 3, ISSUE 3 (March 2016) 37

10 Contactless payment through ATM or POS using the Near Field Communication (NFC) Technology will increase the number of transaction with higher level of security even for the illiterate customers. Banking facilities to the rural customers through Mobile Van, Mobile ATM facilities will provide better results. Technology: Mobile Banking Mobile banking through USSD without any charges or incase of failure of transaction no charge to be levied. Development of e-banking/ mobile banking applications with capability to work in slow networks (2G) Development of mobile banking applications with interoperability among the Banks & Mobile service providers. Smart card, e-purse, e-passbook/m-passbook, Mobile Wallet products can be used to reach the customer without much cost. In India only 2% of adults have a mobile money account when compared to 58% adults having a mobile money account in Kenya. Hence this success of Kenya may be exploited using the mobile technology, at least cost and expanding access to the customers. Quick Response (QR) Code enabled payment of the bills through mobile banking may be exploited to do faster inter- bank transactions. Financial Literacy Financial literacy to be given to the customers acquired under Financial Inclusion (FI). In South Africa television and radio have been used for delivery of financial literacy training. Creating awareness and demystifying the financial concepts will make the community more comfortable to understand the terms and start banking with ease. Credit counseling, financial planning and investment mentoring are the requisite aspects in building a more inclusive financial curriculum. Passbook may be printed with the pictures reminding the customers about education of children, marriage of daughter, medical requirements, construction of house etc., this will make the PMJDY account holders to attract through savings. SHGs and Farmers Club can be used for providing financial literacy and credit counseling. Kiosk Banking can be used for financial literacy and credit counseling. Like e-choupal of ITC providing services to the farmers, we are already having the Village Knowledge Centres (VKCs). The services of VKC can be used for financial literacy and credit counseling. The proper selection of personal for VKC with positive mind set and eager to serve the rural people will bring good results. Business Correspondent (BC) AADHAAR enabled payment system using hand held machines by the BCs to be given thrust. As of 2014, only 3% of the rural population in India had directly received wages into their accounts, as against 23% in South Africa. Hence all wages by Government of India may be routed through PMJDY accounts. In South Africa, over 80% of beneficiaries receive government transfers into an account and it is as high as 88% in Brazil. Hence all fund transfers by Government of India, like various VOL. 3, ISSUE 3 (March 2016) 38

11 subsidies may be routed through PMJDY accounts. The success of LPG Subsidy through bank account can be replicated in other cases also. The role of the agencies like BCs to be complemented by arranging big campaigns at village level for opening new accounts, creating awareness on financial services and products. Skills of BCs need to be developed through training to enable them to off the products and services to the customers from the basket of available services. This will result on cross selling of products to the best advantage of banks and in tune with the needs of the clients. Utility payments like Railway ticket, electricity bill, property tax, and water cess to complement the delivery of financial services offered by BCs will lead to steady stream of income opportunities to the BC. Customer Service & Grievance Redressal Tie-Up The beneficiaries of PMJDY account holders to be converted as clients in a commercial sense and customer service to be improved. There is need to launch new products in tune with the financial requirement of clients. In line with toll free number for PMJDY by Government of India, Bank can provide the toll free number with option of regional languages and solving the complaints on fast track is required. Toll free number can be used with existing ICMT (Integrated Case Management Tool) setup of our bank. Partnerships with existing large institutions like Post officers, community based federations, informal networks and industry bodies will deepen financial inclusion so that PMJDY account holders become mainstreamed into the banking system. Leaving out informal financial system without mainstreaming the role of indigenous money lenders and pawn brokers is like leaving percent of the stake holders, leaving over 80 percent of the financial needs of the community. Understanding the role of informal financial system and bringing in such important stake holders into the formal financial system will be useful. NBFCs emerge as the new clan of agents for banks as they have enormous potential for raising resources on behalf of banks in their intermediation efficiency and due to their demonstrated financial management skills are best positioned to come on board as partners for banks. Corporate having strong distribution and payment system emerge as a good possible partner as BCs for Banks. In Brazil, lottery kiosks, pharmacies, supermarkets and other retailer are used as BCs for banks. The organized retails offer a very big canvas for becoming partners. The PMJDY account holders find it difficult to remit money in the account. This can be made easy by setting up of money collection centres in areas like Railway station, Bus stand to make the banking convenient. The offering of products through television may be tried to make the delivery of products easy and simple like marketing of TATA AIG insurance through Home shop 18. The places where the lottery is familiar lottery based saving accounts may be introduced, to attract the customers. In Brazil this kind of model is successful. Tie-up with international players like Western Money Transfer, UAE Exchange, Wall Street or Money Gram can be explored to make these financial services easily available to PMJDY customers. VOL. 3, ISSUE 3 (March 2016) 39

12 Credit Facilities Others Banks need to become part of credit bureaus for small loans and micro credit so that there is shared understanding on the clients across so as to monitor over leveraging of clients. The Overdraft facility under PMJDY, KCC, SME to be made easy to avail. KCC to be covered under the PMJDY& SME advances to be covered under CGTMSE. SMS based OTP and SMS based receipt for repayment of small loan accounts will bring trust among the PMJDY customers. Pre-printed stickers for repayment of installments will be useful for the PMJDY customers to repay the loan, which doesn t require to be filled by the borrower. Daily or weekly collection of the loan installment by the BC will make the repayment of the loan account easy and convenient to the borrowers. Online loan application to be popularized for PMJDY customers. Request and availing the Overdraft facility through request and withdrawal at ATM to be popularized. Training programme on Financial Inclusion with thrust on transactions in PMJDY accounts is to be imported to the employees. BCs to be trained for acquiring the skills of Bankers, through various training programmes. They should be encouraged for acquiring skills through training and on successful completion of each training programme incentive may be introduced. CONCLUSION The study reveals that in spite of opening crores of accounts under PMJDY scheme with balance outstanding of Rs crores in the Banking system (as of ), due to accounts not brought under transactions the zero balance account is 28.88%. The zero balance accounts has been reduced from % (Sept 2014) to 28.88% (Feb 2016) due to efforts taken by every stake holder of PMJDY scheme. Now reducing the zero balance accounts further needs much more efforts of every stake holder. This can be achieved through the combined use of Financial Literacy, Providing Credit Facilities, Use of Technology, Use of BCs and better Customer Service and Complaint redressal. REFERENCES 1. D T Pai. (2012), Financial Literacy and Inclusion New Challenges The Indian Banker, Vol VII No.11- November, pp Rangarajan, C. (2008), Report of the Committee on Financial Inclusion, January. 3. Rao, S. (2008), Technology Innovation in Banking A Tool For Inclusive Growth, The Indian Banker, Vol. III, No. 12, December, pp Sachin Joseph. (2011), Financial Inclusion: Involving the Uninvolved through Product, Channel and Marketing Innovations The Journal of Indian Institute of Banking & Finance, April-June, pp RBI report (2015), Report of the Committee on Medium-term Path on Financial Inclusion December 6. Website of Reserve Bank of India. URL ( VOL. 3, ISSUE 3 (March 2016) 40