Jan Dhan is probably the most aggressive scheme undertaken by any government for financial inclusion. Between December 2014 and December 2016, the number of accounts increased from 104 million to 262 million and further to 288 million by May 2017. However, the challenge is to get people to use these accounts and get into the banking habit, so that they could move up the ladder and use a credit facility or remittance or third-party product offered by banks. How successful has this scheme been?
The thrust was on numbers to begin with and, hence, having 288 million accounts indicate that virtually every family has access to an account. The average balance held in these accounts, however, is critical as it indicates whether or not the banking habit has been cultivated. The table here provides some data on these accounts, with focus on non-zero balance accounts (information up to February 2017 only). Comparable numbers for average balance in all accounts are also provided to give a perspective.
In terms of the use of these accounts, some interesting facts emerge. First, the average balance kept in these accounts increased and peaked in December 2016. The higher usage of these accounts may be attributed to demonetisation as several transfers were made – both by households as well as those stocking black money for conversion purposes. Still the amount was just about 22 days of NREGA wages. Second, post-demonetisation the money appears to have been withdrawn by around Rs 500 per account. Third, the number of zero balance accounts has come down sharply from 73.3% in 2014 to 24.1% in 2016, but rose to 24.9% in February 2017.
How high are these average balances? Prior to the introduction of this scheme, RBI data on average size of deposits as of March 2014 shows that in rural areas, it was Rs 11,080/account, which rose to Rs 17,251 in semi-urban areas and Rs 36,056 in metro and urban areas. The average for the country was Rs 21,156/account. Two conclusions may be drawn here. The first is that the Indian banking system was doing an excellent job in terms of garnering funds from the business perspective and covered households which had savings. The second is that the present performance, even at its peak of Rs 3,571/account in 2016, is very low compared to the existing average. This raises questions about the savings capabilities in the country.
Some of the questions that may be posed are the following. Do these households actually have money to save considering their low incomes? This is pertinent because with high levels of economic deprivation in the country, households hardly have anything left for saving. Do the households who have been given such accounts know how to operate them, has there been any awareness programme carried out to educate them on these benefits? Are the positive balances here only on account of the direct benefit transfers of the government, where payments on NREGA or pensions or other subsidies made through these accounts? These questions are important as they do involve a cost which banks have to currently bear as these are no-frills zero cost accounts being provided to all and sundry.
The interesting part of these accounts is that it has primarily been an initiative shown by the public sector banks with their share being around 80%, followed by regional rural banks with 16-18%. Both have borne the cost of this scheme. Private sector banks have averaged around 3.2-3.5%. The leading states are UP, Bihar, West Bengal, Maharashtra, Manipur, Rajasthan, Chhattisgarh, Assam and Odisha.
A thought worth pondering over is that if PSBs in the normal course were doing a good job of coverage and Jan Dhan has acted more as a channel for government transfers, the addition of small banks and payments banks would only make the canvas more competitive with each segment fighting for a limited piece. It does appear that we may have reached the end of the road where improvement can accrue only if incomes increase and having more institutions and schemes may not add a significant delta to the frame.
The writer is Chief Economist, CARE Ratings. Views are personal
Source : Economic Times
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