The great Indian financial inclusion circus
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For about a million public sector bank employees, the past fortnight has been extremely hectic. Senior executives could hardly sleep; they were busy video conferencing with colleagues in every state and even district while junior employees were literally on the street, chasing prospective depositors—something never seen in the history of Indian banking. They were put on notice on Independence Day, when Prime Minister Narendra Modi announced the Pradhan Mantri Jan Dhan Yojana as a national mission on financial inclusion and fixed 28 August as the launch date. In his address, Modi spoke about the ambitious project to offer banking facilities to all households in India to complement the Bharatiya Janata Party-led National Democratic Alliance government’s development philosophy of Sab Ka Sath Sab Ka Vikas; he followed it up with a personal letter to all senior bankers. He wrote, “We need to enrol over seven crore households and open their accounts. This is a national priority and we must rise to meet this challenge. There is an urgency to this exercise as all other development activities are hindered by this single disability.... I will myself recognize the achievements of the best-performing branches.”
One cannot find fault with Modi’s earnestness. People in remote villages drink American fizzy drinks like Coke and Pepsi and carry mobile telephones in their pockets but they are pariahs when it comes to banking; India’s banks do not find doing business with them profitable. According to a 2012 working paper of the World Bank, only 35% of India’s adult population has access to formal banking.
So, what’s the Pradhan Mantri Jan Dhan Yojana all about? It’s aimed at bringing at least 75 million un-banked families into India’s banking system by opening two bank accounts per household in rural and urban pockets. All such accounts are being linked to the RuPay debit card, a domestic card network. Every individual who opens a bank account becomes eligible to receive an accident insurance cover of up to Rs.1 lakh and once the bank account has been active for six months and linked to the account holder’s Aadhaar identity number, he or she would become eligible for an overdraft of up to Rs.5,000.
Last Thursday, the government rolled out the programme, claiming about 15 million accounts were opened, exceeding the first day’s target of 10 million. An excited Modi shortened the deadline for achieving the target of 75 million new accounts to 26 January from 15 August 2015. He also topped up each account with life insurance cover of Rs.30,000, adding to the Rs.1 lakh accidental insurance benefit. “Never before in economic history were 15 million bank accounts opened on a single day,” Modi said. Many Union ministers and at least 20 chief ministers simultaneously launched the scheme in states. Information and broadcasting minister Prakash Javadekar launched it in Pune, law minister Ravi Shankar Prasad in Chennai, external affairs minister Sushma Swaraj in Bhopal, home minister Rajnath Singh in Lucknow and human resource development minister Smriti Irani in Surat. Nirmala Sitharaman, minister of state for finance, even cancelled a visit to Myanmar to be part of the launch.
I happened to be present at minority affairs minister Najma Heptulla’s launch function in Kolkata. Forty-odd financially included persons, who opened accounts on that day, walked into a five-star hotel for the first time in their lives and were treated to tea and cookies after Heptulla handed over to them a RuPay debit card and a passbook which says, Mera Khata–Bhagya Vidhaata. It didn’t take much time to find out that for all of them, it was not their first bank account. Clearly, the banks wanted to meet the target at any cost. A retired banker even compared this programme with the late Sanjay Gandhi’s compulsory sterilization programme in 1975. At that time, the health department in various states forced many to undergo sterilization more than once to meet their targets. Bankers followed the same path—beg, borrow or steal, get a human being to open a bank account; it doesn’t matter whether the person is already financially included.
Should we blame Modi for the great Indian financial inclusion circus? To be fair to him, he has resorted to inclusion at gunpoint out of sheer frustration. Lazy bankers have been refusing to expand their services, citing high transaction and technology cost for going rural, while they are sanguine about thousands of crores in loans, given to corporate borrowers, turning bad. For the first time, in January 2006, the Reserve Bank of India had allowed banks to appoint business correspondents and address the so-called last mile problem in providing banking services to the masses, but nothing much has happened except for opening millions of so-called no-frills accounts. By December 2013, banking connectivity had been extended to 328,679 villages from 67,694 in March 2010 and 229 million basic accounts have been opened, but how many of them are operational?
Financial inclusion is the process of ensuring access to financial services and timely and adequate credit to weaker sections and low income groups at an affordable cost. Merely opening a bank account doesn’t ensure that. Unlike Sanjay Gandhi’s sterilization programme or the government’s Pulse Polio immunization initiative, financial inclusion cannot be achieved only by meeting the target numbers. Pushed to the wall, banks will hit the target by doling out passbooks indiscriminately to anybody and everybody, including those who already have bank accounts. The government must make the bankers accountable and, at the same time, ensure that financial inclusion is supported by inclusion in infrastructure, education and other socio-economic areas. Finally, we need many more banks. Until now, licences for new domestic banks have been a once-a-decade affair.
Tamal Bandyopadhyay, consulting editor of Mint, is adviser to Bandhan Financial Services Pvt. Ltd, India’s newest bank in the making. He is also the author of Sahara: The Untold Story and A Bank for the Buck.