Where Is the Dhan for the Jans Who Joined the Jan Dhan Scheme?
Women holding their Jan Dhan account cards. 
Women holding their Jan Dhan account cards. (Photo: PTI)

Where Is the Dhan for the Jans Who Joined the Jan Dhan Scheme?

Is the addition of nearly 31 crore people to the banking system, following the grand announcement of the Jan Dhan scheme four years ago, something to celebrate about?

Yes, if the number is looked at in isolation.

Not at all, if we consider everything that preceded the record-breaking acquisition and what followed thereafter.

Here are a few pointers to help you make up your mind.

The idea of no-frills accounts with a view to bring more people to the banking fold predates the Jan Dhan scheme. Quoting Financial Inclusion Insights Program, InterMedia, a recent EPW paper says that “the percentage of adults (above 15 years) having an account increased from 35 percent in 2011 to 53 percent in 2014 (World Bank website). A more recent survey by FII shows that the proportion of account holders among the adult population has increased to 62 percent.”

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There was a real spike no doubt in the number of bank accounts after the much-touted Jan Dhan scheme. But the progress on this count was equally impressive in the preceding two years.
There was a real spike in the number of bank accounts after the much-touted Jan Dhan scheme. 
There was a real spike in the number of bank accounts after the much-touted Jan Dhan scheme. 
(Photo: PTI)

Did the scheme help people better engage with banks?

Not quite, if we consider that more than 5 crore of the all Jan Dhan accounts are zero-balance accounts. And nearly 20 percent of all these accounts haven’t had any transaction in the last two years. Does this mean that while banks have become accessible, banking transactions are not yet to be affordable for most of them?

What about the other promised benefits to the Jan Dhan account holders?

The overdraft of up to Rs 5,000 was delivered to just about 1 percent of all account holders.

And insurance claims worth only Rs. 1,875 were settled since the inception of the scheme. Promised benefits, therefore, remained just that for a vast majority of the people who joined the scheme.

End of Financial Untouchability?

The Jan Dhan scheme was not just about opening new accounts. It was meant to end “financial untouchability”. In other words, increasing access to banks was just a stepping stone to greater financial inclusion.

How have we fared on that count?

One of the ways to get a sense of that is by checking whether there has been any spike in credit flow to all the new entrants to the banking fold. The EPW paper argues that “there is no sign, at least on this count, of increased access to formal credit that the PMJDY (Pradhan Mantri Jan Dhan Yojana) is supposed to have ensured for its beneficiaries.”

Much of the rise in the credit-deposit ratio for the rural population took place before the launch of the PMJDY, particularly during the government of United Progressive Alliance–I. 
Much of the rise in the credit-deposit ratio for the rural population took place before the launch of the PMJDY, particularly during the government of United Progressive Alliance–I. 
(Photo: PTI)
To support its claim, the paper says that “credit-deposit ratio for the rural population increased from 41 in 1999 to 66.9 in 2016. However, much of the rise took place much before the launch of the PMJDY, particularly during the government of United Progressive Alliance–I, when it increased from 43.6 in 2004 to 57.1 in 2009. Since 2014, it has more or less stagnated in rural areas and has deteriorated slightly from 58.2 in 2014 to 57.7 in 2016 for semi-urban populations.”

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Credit-deposit ratio tells us about the amount of credit available for a section of population for every Rs 100 deposited by them. Low credit-deposit ratio for rural areas means they deposited more and received only a part of that in the form of credit.

Since the people from rural areas were intended beneficiaries of the Jan Dhan scheme, they did not get commensurate benefits by way of greater access to the institutional credit flow.

The EPW paper therefore concludes that “within the poorest section of the population, for every six households exposed to formal credit, 12 households are exposed to informal credit.

 Even after the launch of the scheme, one in 5 households are  exposed to usurious rates of interest by local moneylenders
Even after the launch of the scheme, one in 5 households are exposed to usurious rates of interest by local moneylenders
(Photo: PTI)
Moreover, even in absolute numbers, the poorest are most exposed to informal credit with 1 in 5 households still being exposed to usurious rates of interest of local moneylenders (ICE 360° survey). 

Access to bank accounts seems to have had little effect on their exposure to moneylenders. Jan Dhan or no Jan Dhan, life therefore goes on for a majority of people in rural areas.

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The Impact on Banks

There is no denying that ensuring universal access to the banking system is a novel idea. But any idea, once implemented, has to pass through the crucial cost-benefit analysis test.

How does the Jan Dhan scheme fare on this count?

While benefits for the intended beneficiaries have been few and far between thus far, the accelerated acquisition of new customers has definitely impacted the over-burdened banking system. And, as always, government-owned banks have been made to carry the bulk of the burden.

Only 3 percent of all Jan Dhan accounts are reportedly with private banks.

According to a BloombergQuint report, the cost of opening a no-frill account is in the range of Rs 200 to Rs 350. The cost of acquisition depends on the geographical location of customers and the channels used to bring them on board. And there is an additional cost of Rs 50 per annum on maintaining one account.

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In other words, banks spend close to Rs. 1,600 crore every year on maintaining Jan Dhan accounts!  

Can we now proudly proclaim that the Jan Dhan has been a runaway success? Not quite, if we make an assessment based on available set of data. We don’t know yet if the scheme has transformed millions of lives through the direct benefit transfer money directly getting credited to the accounts of intended beneficiaries.

Also Read : SBI Defends Penalty as Means to Bear Jan Dhan Costs

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