Pradhan Mantri Jan Dhan Yojana (PMJDY): An Innovative Scheme for Financial Inclusion in India

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1 1. Introduction Pradhan Mantri Jan Dhan Yojana (PMJDY): An Innovative Scheme for Financial Inclusion in India Jitender Goel Assistant Professor, Department of Commerce, Acharya Narendra Dev College University of Delhi, India & Rashmi Goel Research Scholar, Department of Commerce and Business Studies, Jamia Millia Islamia, New Delhi , India In the era of Liberalization, the banking sector has grown tremendously but usurious money lenders in rural areas and urban slums continuing to exploit the poor section in the society. Government of India and RBI have taken various initiatives for inclusive growth like expansion of bank branch network, establishment and expansion of cooperative and RRBs, lead bank scheme, opening of no- frills accounts, relaxation on KYC, use of technology etc. The study of Table 1 reveals that in recent years there is an incremental progress in the figures of banking outlets, number of branches, amount in Basic Saving Bank Deposit Account (BSBDAs) and overdraft facility availed by BSBDAs. Inspite of this growth, still about 6 crore rural and 1.5 crore urban households do not have access to banking services in India. Table 1: Progress Report of Financial Inclusion of All Banks Including RRBs S. N0. Particulars March,2010 March,2011 March,2012 March,2013 March, Banking 33,378 34,811 37,471 40,837 46,126 Outlets in Villages- Branches 2 Banking 34,316 81,397 1,44,282 2,27,617 3,37,678 Outlets in Villages- Branchless Mode Total 67,694 1,16,208 1,81,753 2,68,454 3,83,804 3 BSBDAs through branches (No. in millions) 4 BSBDAs through branches (Amt. in billions) 5 Overdraft Facility Availed in BSBDAs (No. in millions) > RJSSM: Volume: 04, Number: 09, January 2015 Page 311

2 6 Overdraft Facility Availed in BSBDAs (Amt. in billions) Source: Table IV.7, RBI Annual Report, The earlier schemes like Swabhimaan have been criticized because of the lacking of various aspects of comprehensive financial inclusion like limited geographical coverage and absence of micro- credit, insurance and pension products. From the learning of past schemes, Hon ble Prime Minister Shri Narendra Modi announced a new scheme PMJDY on Aug. 15, 2014 for weaker section of the society as an integrated approach for providing banking, insurance and pension to mitigate the ill effects of earlier schemes. 2. Review of Literature The studies which deal with the various dimensions of financial inclusion and PMJDY have been reviewed for the purpose of writing this paper. Some of the reviewed studies are as follows: Chowhan and Pande (2014) focused on the importance of financial inclusion and the impact of PMJDY on all the stakeholders in our country. This study concluded that the PMJDY protects the financial wealth and other resources of rural population in exigent circumstances. It also mitigates the exploitation of vulnerable sections by the usurious money lenders by facilitating easy access to formal credit. Pathak et. al. (2014) made a study to find out number of accounts to be opened in PMJDY and how the weaker section will be benefited from this scheme. This study suggested that the banks should be instructed of economic changes to maximize social good and to serve as a platform to raise the level of economic activity. Khuntia (2014) analyzed the recent trends, key areas and the barriers in the process of financial inclusion in India with special reference to PMJDY. The study suggested the strategies to ensure maximum financial inclusion for the under privileged and unbanked areas. Kumar (2014) offered some unique and innovative solution which can be augmented with the existing solutions to boost financial inclusion. The study concluded that financial inclusion is not standalone effort. Financial literacy, branch expansion, innovative services, e- governance, infrastructure, and various other integrated approaches should be implemented simultaneously. Barhate and Jagtap (2014) focused on financial inclusion, strategy of PMJDY and issues related to the success of the scheme. They concluded that every new thing requires determination and attitude towards success path. They also concluded that to withstand the heat of economic down surge and fight poverty, the Jan Dhan Yojana is good mechanism. 3. Objectives The present paper aims to achieve the following objectives: (i) (ii) (iii) (iv) To give an overview of PMJDY. To analyze the progress of PMJDY. To discuss the various issues and challenges related to PMJDY. To provide suggestions for proper handling of issues and challenges related to PMJDY. 4. Methodology A detailed study of the literature related to PMJDY has been made for the purpose of writing this paper. The study is based on secondary data which has been collected from various published sources, websites, articles, journals and newspapers. The discussion based model has been used to explain PMJDY in detail and to find out its response till November 30, > RJSSM: Volume: 04, Number: 09, January 2015 Page 312

3 5. An Overview of PMJDY PMJDY has been launched by Hon ble Prime Minister Shri Narendra Modi as a national mission for financial inclusion with the bundle of benefit on August 28, It focuses on the wider geographical coverage with extended banking services in each Sub Service Area consisting of 1000 to 1500 households so that basic banking services are available to all within a reasonable distance, say about 5 Km. PMJDY comprising six objectives is going to be implemented in two phases. The six objectives include universal access to banking facilities, providing Basic Banking Accounts with overdraft facility and RuPay Debit Card to all households, Financial Literacy Programme, creation of credit guarantee fund, micro- insurance, and unrecognized sector pension schemes like Swavalamban. The first three objectives would be given more importance in first phase (Aug. 15, 2014 to Aug. 14, 2015) and the rest would be achieved in the second phase (Aug. 15, 2015 to Aug. 14, 2018). Special benefits under PMJDY scheme includes: (i) Interest on deposit. (ii) Accidental insurance cover of Rs.1.00 lac, for which RuPay Debit Card must be used at least once in 45 days. (iii) No minimum balance required. (iv) Life insurance cover of Rs.30,000/- (v) Easy transfer of money across India. (vi) Beneficiaries of Government schemes will get direct benefit transfer in these accounts. (vii) Access to pension, insurance products. (viii) Overdraft facility upto Rs.5000/- is available after satisfactory operation of the account for 6 months in only one account per household, preferably lady of the household. According to the guidelines issued to the banks a person is eligible for life insurance cover if: (i) He/she opening bank account for the first time, with RuPay Card in addition, during the period from to , or any additional period as may be extended further by Government of India. (ii) He/she should normally be head of the family or an earning member of the family and should be in the age group of 18 to 59 (i.e. person should be at least 18 years old, and should not have turned 60). In case the head of family is 60 years or more of age, the second earning person of the family in the above mentioned age group will be covered, subject to eligibility. (iii) He/she must have a RuPay Card and Bio Metric Card linked to bank account or in process of being linked to bank account if not already there. (iv) Only one person in the family will be covered in the Bima Scheme and in case of the person having multiple cards/accounts the benefit will be allowed only under one card i.e. one person per family will get a single cover of Rs.30,000 subject to the eligibility conditions. The life cover of Rs 30,000/- under the scheme will be initially for a period of 5 years, i.e. till the close of financial year Thereafter, the scheme will be reviewed and terms and condition of its continuation, including the issue of future payment of premium by the insured thereafter, would be suitably determined. The guidelines exclude many from the benefits of life cover. The person will become ineligible if: (i) He/she is an employee (in service or retired) of Central Government and State Government, Public Sector Undertakings, Public Sector Banks, any entity owned by Central Government and his/ her families. (ii) His/her income is taxable under I.T. Act 1961 or is filing the yearly Income Tax return or in whose case TDS is being deducted from the income and his/her families. (iii) He/she is included in the Aam Aadmi Bima Yojana covering 48 occupations defined under the Scheme, and his/ her families. > RJSSM: Volume: 04, Number: 09, January 2015 Page 313

4 (iv) He/she is otherwise eligible having life cover on account of any other scheme of the Bank against the account, shall have to choose between the two schemes and derive benefit from only one. 6. Progress of PMJDY Over welcomed response of the public is the witness of the success of PMJDY. The scheme was launched with initial target of opening 7.5 crore accounts. As the initial target has been achieved just in 2.5 months, the Government is now looking to open about 10 crore accounts by January 26, According to finance ministry Kerala, Goa, Chandigarh, Pondicherry, Lakshadweep and three districts of Gujarat-Porbandar, Mehasana, Gandhi Nagar have covered all households under PMJDY with at least one bank account. Table 2: Details of Accounts Opened under PMJDY as on Rural Urban Total No. of Accounts No. of RuPay Debit Card Balance in Accounts (in Lacs) No. of Accounts with Zero Balance Public Sector Banks (PSBs) Regional Rural Banks (RRBs) Private Banks (PBs) Grand Total Percentage Contribution of PSBs Percentage Contribution of RRBs Percentage Contribution of PBs Source: Compiled by researcher from the website The Table 2 reveals that till November 30, 2014 more than 8.32 crore bank accounts of which 4.95 crore are in rural and 3.37 crore in urban areas, with Rs lacs have been opened under the scheme. It can be seen from the table that 74.27% of the accounts have been opened with zero balance. It is also clear from the Table 2 that the performance of PSBs is at the top followed by RRBs and PBs. PSBs are contributing more in PMJDY which is evident from the fact that their number of accounts opened, number of RuPay Debit Card issued and balance in accounts opened are more than 80%. However, RRBs and PBs are contributing less which is reflected from the fact that their number of accounts opened, number of RuPay Debit Card issued and balance in accounts opened are near to 17% and 3% respectively. 7. Issues and Challenges in PMJDY 7.1 Issues Originally, it was announced that the accidental insurance, life insurance cover and credit facility will be available to all the account holders. Now a lot of conditions have been put by ministry to avail these facilities. Various issues which might make the scheme unattractive have been raised after putting several riders for life insurance cover under PMJDY. Some of the key issues in PMJDY are as follows: > RJSSM: Volume: 04, Number: 09, January 2015 Page 314

5 (i) (ii) (iii) (iv) (v) The insurance would be provided only to one person in a family for accounts opened between August 15, 2014 and January 26, The life cover of Rs 30,000 will be available initially for a period of 5 years to one person per family, normally the head of the family or an earning member in the age group of 18 to 59. Person must be having a RuPay Card and Bio Metric Card linked to bank account or in process of being linked to bank account if not already there. Overdraft facility upto Rs.5000/- is available to only one person per household, preferably lady of the household after satisfactory operation of the account for 6 months. Accidental insurance cover of Rs.1.00 lac, for which RuPay Debit Card must be used at least once in 45 days. 7.2 Challenges Challenges faced by the Government in effective implementation of the scheme include: (i) Poor telecom connectivity and lack of infrastructure in tribal and hilly areas, uttarakhand, and 82 left wing extremism have posed a big challenge in the mission of 100% coverage of households in the country. (ii) Duplication and dormant accounts are creating a lot of problems in Direct Benefit Transfers. (iii) Private Banks are not highly motivated from the scheme because increased salary of BC and other operational costs associated with the scheme are very high in comparison of the earnings from the float money. (iv) Credit facility without the assessment of credit worthiness will be the challenge for the creation of Credit Guarantee Fund. (v) People of villages who have transferred to the metropolitan cities to earn their livelihood do not have any documents to show. This makes it tough for them to get benefit from PMJDY. 8. Recommendations (i) PBs and RRBs are not contributing satisfactory in the success of PMJDY hence some monetary motivation and counseling is required to be given to motivate them. (ii) Most of the banks do not have any system of checking duplication of accounts. Some measures are required to control the duplication of accounts so that the benefits can go to the needy one. (iii) Connectivity and infrastructure are the big issues in an effective implementation of the scheme. The Government is required to give due focus on making them available. (iv) Life insurance cover is available only upto the age of 60 years. It is suggested that it can be given for whole life to serve the purpose of giving social security. (v) Credit facility is available to only one account per household, preferably lady of the household. It should be given to all account holders without any exclusion on the basis of their worthiness. (vi) Earlier scheme Swabhimaan is criticized because of lack of financial literacy. Now Government is required to establish adequate number of Financial Literacy Centres (FLC) and Mechanism to facilitate branding and awareness on Bank Mitr, and Financial Literacy and Credit Counseling (FLCC) programs for the success of the scheme. 9. Conclusions In the era of Liberalization, the banking sector has grown tremendously but usurious money lenders in rural areas and urban slums continuing to exploit the poor section in the society. Government of India and RBI had taken various initiatives for inclusive growth but still about 6 crore rural and 1.5 crore urban households do not have access to banking services. From the learning of past schemes, Hon ble Prime Minister Shri Narendra Modi announced a new scheme PMJDY on Aug 15, 2014 and launched it as a national mission for financial inclusion on August 28, 2014 for weaker section of the society as an integrated approach for providing banking, insurance and pension to mitigate the ill effects of earlier schemes. The scheme was launched with initial target of opening 7.5 crore accounts. As the initial target has been achieved just in 2.5 months, the Government is now looking to open about 10 crore accounts by > RJSSM: Volume: 04, Number: 09, January 2015 Page 315

6 January 26, Kerala, Goa, Chandigarh, Pondicherry, Lakshadweep and three districts of Gujarat have covered all households under PMJDY with at least one bank account. It is found that more than 8.32 crore bank accounts were opened out of which 74.27% accounts were zero balance. The performance of PSBs is at the top with more than 80% contribution in PMJDY followed by RRBs and PBs with 17% and 3% respectively. It is also found that the various issues and challenges in effective implementation of scheme include several riders for life insurance cover, poor telecom connectivity, lack of infrastructure, duplication and dormant accounts, poor performance of PBs, increased salary of BC and other operational costs associated with the scheme, and credit facility without the assessment of credit worthiness. In order to ensure successful and effective implementation of the scheme, it is suggested that the government should give due focus on motivation and counseling to PBs and RRBs, establishment of adequate number of FLC, measures to control the duplication of accounts, and improving connectivity and infrastructure. It is also suggested that life insurance cover, accidental cover and credit facilities should be given to all account holders without any exclusion. 10. References 10.1 Articles/ Research Papers/ Reports Barhate G. H. and Jagtap V. R., Pradhan Mantri Jan-Dhan Yojana: National Mission on Financial Inclusion, International Journal of Applied Research, Vol. 4, No. 12, Dec 2014, pp Chowhan S. S. and Pande J. C., Pradhan Mantri Jan Dhan Yojana : A Giant Leap Towards Financial Inclusion, International Journal of Research in Management and Business Studies, Vol. 1, No. 4, Oct. Dec. 2014, pp Is the PMs Jan Dhan Yojana a fight against poverty? Retrieved From Divya K. H., A Study on Impact of Financial Inclusion with Reference to Daily Wage Earners, India, Journal of Business Management and Social Sciences Research, Vol. 2, No. 6, June Khuntia R., Pradhan Mantri Jan Dhan Yojana : A New Drive Towards Financial Inclusion in India, ZENITH, International Journal of Business Economics and Management Research, Vol. 4, No. 11, November 2014, pp Kumar V., Financial Inclusion in India: Unique Solutions, Indian Streams Research Journal, Vol. 4, No. 8, Sept. 2014, pp Paramasivan C. and Ganeshkumar V.,Overview of Financial Inclusion in India, International Journals of Managemnt and Development Studies, Pathak A.,Soni A. and Agarwal B. P.., Pradhan Mantri Jan Dhan Yojana for Weaker Section- An Evalution, Shabd Braham, International Research Journal of Indian Languages, Oct. 2014, pp Pradhan Mantri Jan-Dhan Yojana,Department of Financee services, Ministry of Finance RBI annual report, Sharma A. and Kukereja S., An Analytical study: Relevence of Financial Inclusion for Developing nations, International Journal of Engeneering And Science, 2013, pp Pradhan Mantri Jan Dhan Yojana: 5 things you want to know Zee Biz, Sunday, August 31, 2014, 12:39 retrieved from The Hindu, New Delhi, November 14, 2014, 16:50 IST "SBI takes lead in opening bank accounts under Jan Dhan Yojana". The Economic Times. 11 Sep Retrieved Jan Dhan Yojana: Concern over scope for misuse, slow roll-out of debit cards. Indian Express. 10 Sep Web References > RJSSM: Volume: 04, Number: 09, January 2015 Page 316

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