10/15/2014

Mrunal (Banking) Prime Minister's Jan Dhan Yojana: Features, Benefits

- Mrunal - http://mrunal.org -

[Banking] PM Jan Dhan Yojana: Salient Features, Benefits,

Limitations & truckload of criticism
1.
2.
3.
4.
5.

Prologue
Disturbing numbers
PMJDY: Salient Features:
Jan-Dhan: Benefits, Pro-Arguments
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)

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.)
Villages have Banking Correspondent Agents (BCA) . But this model is epicfail,
3.3 lakh
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.
50%

24%

Is the average loan-interest rate charged by Private microfinance institutions

(MFIs).
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:
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Mrunal (Banking) Prime Minister's Jan Dhan Yojana: Features, Benefits

PMJDY: Salient Features:

Who
When
Purpose se
Target
motto

Department of Financial Services under Finance ministry

15th August 2015
Financial inclusion
Open bank accounts for 7.5 crore families in one year.
Meraa Khaataa Bhagya Vidhata

PMJDY scheme has 6 pillars in two phases

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

1.Service
area

2.Account

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.
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:
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-

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Mrunal (Banking) Prime Minister's Jan Dhan Yojana: Features, Benefits

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)

Credit guarantee fund- to cover losses in overdrafts. (Because some villagers
4.CGF
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.

6.DBT

Earlier Government launched Swavalamban Yojana to make unorgnized

sector workers join NPS scheme.
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.
2.
3.
4.

not more than 1 lakh rupee loan per year

cannot withdraw more than 10,000 rupees per month.
cannot deposit more than 50,000 rupees in account
Valid for 12 month only.

Jan-Dhan Yojana: Benefits, 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

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Mrunal (Banking) Prime Minister's Jan Dhan Yojana: Features, Benefits

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.

Smurfing

Hawala Operators can spilt the whole amount (say 1 crore) into several
small units into several JDY accounts
Then send money overseas without coming under the watchful eyes of
Income tax or Enforcement directorate.

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Mrunal (Banking) Prime Minister's Jan Dhan Yojana: Features, Benefits

Money
mules

Just like those Drug mules who ingest condom packed with narcotic drugs
and deliver it to other 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

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Mrunal (Banking) Prime Minister's Jan Dhan Yojana: Features, Benefits

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
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Mrunal (Banking) Prime Minister's Jan Dhan Yojana: Features, Benefits

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
DotBCA will get 2% commission on transaction
A
Dot- DBT will fail = junta wont get much money in Jan-Dhan accounts and there are
B
fingerprint problem=less transactions.

DotC

Prime Minister Modi believes in free-market economy and minimum

governance.
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 /
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Mrunal (Banking) Prime Minister's Jan Dhan Yojana: Features, Benefits

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.

Published on 13/10/2014 @ 7:45 pm under Category: Economy

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