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Monday, September 22, 2014

Jan Dhan scheme may not bring much ‘dhan’ to public sector banks

People who have moved to the Capital from villages across the country to earn their livelihood, as household help and drivers, do not have any documents to show residence proof or even an Aadhar card for identity purpose. This makes it tough for them to benefit from the Pradhan Mantri Jan Dhan Yojana (PMJDY).

And public sector banks are also facing challenges, albeit of a different kind. The banks are staring at a hole in their balance sheets as the scheme gathers steam.

They hope that the Centre would soon start channelising the direct benefit transfer (DBT) payments to these accounts, paving the way for them to earn some revenues via commissions.

The problem is that banks in the Capital – despite the push for financial inclusion – do not think it is worth their while to do business with people from lower socio-economic backgrounds. To make matters more difficult, banks want them to bring about Rs2,000 as initial deposit before opening a Jan Dhan account. At the latest count, the number of PMJDY accounts have crossed the 4 crore mark.

“There is clear intent to ride the DBT benefits through these accounts. But, the real issue is when this will actually become a reality. Till then, the public sector banks have to bear the burden,” said a chief executive of a public sector bank.

Apart from the operational costs involved, a big chunk of the spend will go to payment of salaries for the business correspondents (BC). To ensure the success of this scheme, the Finance Ministry has also decided to increase the salary payments for BCs to Rs5,000 per month. 

If we assume a BC force of 5 lakh persons, then the annual salary bill for the banks will be around Rs3,000 crore. Now, the moot question is whether the PMJDY accounts will earn sufficient returns to offset the increased BC salary payout for the banks.

Of course, one could always argue that the BCs will not end up servicing only PMJDY accounts.

But, the real issue is that banks see only costs getting saddled on them upfront due to financial inclusion drive, without any near-term revenues in sight. Also, the float money that they will enjoy from these “basic accounts” are not going to be much, going by the early trend.

For the roughly 4 crore Jan Dhan accounts that have been opened, the total value of deposits received by banks is about Rs3,500 crore. Once all the initially targeted 7.5 crore PMJDY accounts are opened, the maximum float money is expected to be around Rs8,000 crore.

So the annual earnings by banks from the float money will be about Rs1,000 crore, lower than the estimated operational costs. The only thing that could change the economics for the banks will be early routing of DBT monies to the accounts.

The Finance Ministry wants to ensure that no-frill account holders don’t rush to open PMJDY accounts just to get privileges of free accident cover of Rs1 lakh, free life cover of Rs30,000, overdraft facilities and a RuPay debit card.

It has now announced that even existing bank accountholders will be entitled for the benefits of RuPay debit cards, insurance and overdraft facilities currently associated with Jan Dhan benefits.

The same benefits will also now be extended to the accounts opened by cooperative banks, Anurag Jain, Mission Director for PMJDY, had recently said.

“Duplication is bound to happen. Most public sector banks don’t have the systems to check this — especially in interior India,” a chief executive of a public sector bank said.

Source : The Hindu


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