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[Banking] PM Jan Dhan Yojana: Salient Features, Bene ts, Limitations & truckload of criticism

Economy (http://mrunal.org/category/economy) / 19 mins Ago /

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1.

Prologue

2.

Disturbing numbers

3.

PMJDY: Salient Features:

4.

Jan-Dhan: Benefits, Pro-Arguments

5.

Criticism / Anti-Arguments
1. Multiple accounts to get more insurance
2. Money laundering
3. Insurance thuggary in small fonts
4. BCA model is EPICFAIL
5. DBT Epicfail => vicious cycle

6.

Mock Questions

Prologue
Topics part of the [Current] series
August: scheme launched
September week3: Rajanbhai finds faults in Jan Dhan scheme while speaking in a seminar. Taking cue from him, all the
columnists have jumped in a competition who can criticize this scheme more?

Disturbing numbers
Lack of financial inclusion in India

Only
59%

Of Indian households have bank accounts (Census 2011)

50%

Of the bank accounts are not operated at all. Most probably those accounts opened part of MNREGA and other
campaigns.

~46,000

Villages have bank branches. (total villages are above 6 lakhs.)

3.3 lakh

Villages have Banking Correspondent Agents (BCA) . But this model is epicfail, well see it further in this article.

34%

is the average loan interest charged by local money lenders.

55%

Of Rural Dalit families have to borrow money from local moneylenders / Shroffs.

Is the average loan-interest rate charged by Private microfinance institutions (MFIs).

24%

by 2010, Microfinance agents even started goondagiri to recover loan money, and this model began to
decline.

It doesnt mean Government and RBI havent nothing. Since independence, they have launched many initiatives for financial
inclusion- Bank Nationalization, Regional Rural banks, cooperative banks, Banking correspondence agent, Swabhiman,
Swavlamban, Microfinance, No-frills account, 25% rural branch rule, Bharatiya Mahila Bank and so on.
You can read more details about them under Mrunal.org/economy particularly under the [Nachiket Mor] Committee article
series. Anyways, moving on:

PMJDY: Salient Features:

Who

Department of Financial Services under Finance ministry

When

15th August 2015

Purpose se

Financial inclusion

Target

Open bank accounts for 7.5 crore families in one year.

motto

Meraa Khaataa Bhagya Vidhata

PMJDY SCHEME HAS 6 PILLARS IN TWO PHASES

Phase 1: Three pillars (2014 to 2015, 15th August)

1.Service
area

Country will be divided into sub-service areas (SSA)

Each SSA will cover 1000-1500 households
Each household will have a banking outlet within 5 km distance.

area

Each household will have a banking outlet within 5 km distance.

Each household will have atleast one bank account.
Even minors of 10 years and above age, can open.
With a Rupay debit card
Rs. 1 lakh accident cover per account. Conditions:

2.Account

1 individual and multiple bank accounts = still maximum 1 lakh cover

1 family, husband-wife separate accounts= each gets 1 lakh cover.
If you open account before 26th January 2015, youll get additional Rs.30,000 life insurance cover.
If your good credit history for first 6 months=>Rs.5,000 overdraft facility. If same family has multiple
accounts then only 1 account gets this benefit- first preference to womans account.

3.Literacy

Financial literacy programmes to make juntaa aware of benefits of saving and investing money properly.

Phase 2: Next Three pillars (2015 to 2018)

4.CGF

Credit guarantee fund- to cover losses in overdrafts. (Because some villagers might use overdraft for desi
liquor and then default in repayment)

5.Insurance

If JDY account holder is interested, he can buy micro insurance product.

Earlier Government launched Swavalamban Yojana to make unorgnized sector workers join NPS scheme.

6.DBT

Those people will get NPS-pension directly in these Jan-Dhan accounts.

Government will also try for direct benefit transfer (DBT) i.e. sending scheme-subsidy money directly to
beneficiaries jan-dhan accounts.

How to open Jan Dhan account?

if you already have a bank account, no need to apply again. Just get a ruPay debit card, and you get automatically
enrolled into this system.
Jan Dhan accounts are put under Core Banking solution (CBS) platform, therefore it can be transferred from one branch to
another, as per your request.
if you dont have any account, open a new account with any one of the following documents: Aadhar Voters card, Driving
licenses, PAN, Passport etc.
Small account
If a person doesnt have any official documents, still bank can open its account- with just his photo and signature.
But such account will be called Small account. RBI has put following restrictions on them
1. not more than 1 lakh rupee loan per year
2. cannot withdraw more than 10,000 rupees per month.
3. cannot deposit more than 50,000 rupees in account
4. Valid for 12 month only.

Jan-Dhan Yojana: Bene ts, Pro-Arguments

Will aid financial inclusion, will rescue villagers from the clutches of evil money lenders. You can cite those disturbing
numbers to justify your pro stand in the group discussion (GD) when other candidates (brainwashed by theHindu) try to
create fish market in GD by criticizing everything under the sun.
Could boost household savings rate similar to Bank Nationalization in 1960s.
Direct Benefit transfer (DBT) money will flow into those accounts (and from there again as loans to other needy people.)
Thus savings will turn into capital. Subsidy leakage will decline.
Will increase Insurance penetration.

Overdraft only after monitoring performance => win-win, rare chances of NPA/defaults.

Jan-Dhan Yojana: Criticism / Anti-Arguments

Prime Ministers Jan Dhan Yojana (PMJDY) will fail because:

RAJANS WORRY: MONEY LAUNDERING AND MULTIPLE ACCOUNTS IN JAN DHAN YOJANA

Multiple accounts to get more insurance

Rajanbhai is concerned that:
Jan Dhan scheme gives Rs. 1 lakh insurance on each account.

To get large insurance or overdraft facility, same person might open multiple accounts in multiple banks- one with Aadhar
card, one with PAN card, one with voters card.
Sarkaari banks may also overlook nuisance, in order to meet their targets. Recall the earlier article on PJ Nayak
Committee. Since Government is the majority shareholder in sakaari banks=> Chairman and board of directors have
pressure from Government => they pressurize bank staffs to enroll maximum bank accounts so that Modi can brag about
it during his Madison square speech.
RBI suggestion: banks should establish a single information sharing system to weed out such multiple accounts.
Counter argument: State bank of India has made clear guidelines that even if multiple accounts of same person, he will
get only 1 lakh cover. And since all accounts are put under Core banking solution (CBS) platform = duplication / mischief
unlikely.
Money laundering
Rajanbhai is also worried that JDY accounts could be used for money laundering and Hawala operations.

Hawala Operators can spilt the whole amount (say 1 crore) into several small units into several JDY
Smurfing

accounts
Then send money overseas without coming under the watchful eyes of Income tax or Enforcement
directorate.
Just like those Drug mules who ingest condom packed with narcotic drugs and deliver it to other

Money
mules

country via airplanes.

Money mules= individuals with JDY accounts, who facilitate Hawala operators to send money via their
account.

Insurance thuggary in small fonts

Jan Dhan gives you free accident insurance cover worth Rs.1 lakh.
But there is a secret condition- you must use RuPay debit card atleast once every 45 days.
This is not be possible for poor families in remote tribal areas. So, theyll lose the benefit due to inactivity.
Why this secret condition?
Because insurance money doesnt fall from sky. Even if youre getting it for free, still someone has to pay the premium,
right? In this case, Modi is not paying the premium. (Because he wants to keep fiscal deficit low).
Your premium is paid by NPCI. National Payments Corporation of India owns the rupay card system. Therefore, they want
you to frequently use the card.
BCA model is EPICFAIL

JUST LIKE A COACHING WALLA DOESNT FINISH SYLLABUS IF STUDENTS ARE LESS, BCA WILL RUN AWAY IF
COMMISSION IS LOW

Jan Dhan aims to divide entry country into sub-service areas (SSA)
Within those SSA, each household will have a banking outlet within 5 km distance.
Since banks cannot open branches everywhere, Government aims to achieve this target via Banking Business
Correspondence Agents (BCA) or Bank Mitra.
Whatre the Problem with BCA model?
1. They get 2% commission on each transaction. Monthly income ~2000 rupees.
2. As a result, they quickly lose interest in this game, being some other side jobs. So, BCA are never available when customer
needs them. 47% of the BCA are untraceable. (says RBI survey)
3. Allegations of malpractice. For example
1. For opening new account, they ask separate 100 rupees as service charge (although no bank or RBI has authorized
such payment).
2. Some BCA ask separate commission / bakshish from illiterate villagers for withdrawing money from account (beyond
the official 2%)
3. For loan processing too, they demand separate commission, outside banks knowledge.
Jan-Dhan relies on the failed BC model=> Jan dhan will fail as well.
DBT Epicfail => vicious cycle
PMJDY aims to make all scheme-subsidy payments directly to Jan-Dhan bank accounts. But this Direct benefit transfer (DBT)
itself is a failure because:
Aadhaar project is yet to cover all residents.

Aadhar project facing court cases, because UIDAI is not a statutory body, backed by any law.
UPA Government had to admit in court that Aadhar-number is not compulsory get Sarkaari-scheme benefits=> Juntaa
wont be motivated to get Aadhar cards=> Jan Dhan will have trouble transferring money.
AT BCA level, Biometric authentication (finger scan) = showing 25-30% errors. So citizens will have difficulty in withdrawing
money even if theyve Aadhar card.
Now if you join the dots

DotA

BCA will get 2% commission on transaction

DotB

DBT will fail = junta wont get much money in Jan-Dhan accounts and there are fingerprint problem=less
transactions.
Prime Minister Modi believes in free-market economy and minimum governance.

DotC

Similarly state governments too, will reduce their subsidy burden to comply with FRBM act.
Gradually, less subsidies on food, fertilizer and fuel. So, even if DBT works fine, juntaa wont get much money in
their accounts =less transaction= less commission to Bank Mitra.

Join Dots A+B+C = BCA (Bank Mitra / Banking correspondence agent) will get very low commission, hell lose interest and
service quality will declining- just like those coaching wallas, who dont finish syllabus if batch strength is low.
Bad customer experience= People cant use Ru-pay cards every 45 days = insurance protection also gone = further
negative experience = Jan Dhan accounts will become dormant. Households will again resume saving money in gold or
wasting on desi liquor.
Misc. Anti arguments
1. JDY is just old wine (no frills account) in new bottle (Jan Dhan Account). when earlier scheme didnot improve financial

inclusion, there is no chance, new one will succeed.

2. Systematic and well planned reforms necessary- as recommended by Nachiket Mor Committee- payment banks,
wholesale banks, UEBA etc. But Government is in haste to capture media attention.
Counter-arguments
Rural incomes will improve because of other Government schemes- skill India, make in India etc.
So, People will use bank accounts, even if Government gives them no subsidies / DBT / MNREGA.
With penetration of mobile, internet banking and digital literacy, people will be able to make transactions online. BCA will
become irrelevant.
Therefore, even if Aadhar card, DBT or BCA model fails, it is not necessary that Jan Dhan will automatically fail.

Mock Questions about PM Jan Dhan Yojana

MCQs
In bank and RBI exams- MCQs about trivial facts and figures. ExampleOn which day was JDY launched?
How many accounts will be opened in one year?
How much overdraft offered?
What is the motto of this scheme etc.
In CSAT-2015: theyll give you a few statements about JDYs salient features. Youll have to find correct of them. Only 1 and
2; only 1, 2 and 4.and so on.
Mains
Answer following in 200 words each

1. Though ambitious, PMJDY faces certain operational difficulties. Elaborate

2. Discuss the initiatives taken since the independence, for the financial inclusion of rural families.
3. Enumerate the salient features and benefits of PMJDY.
Interview/ GD: PMJDY- pro and anti-arguments. And what steps should be taken to ensure its success.

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