Did Jan Dhan accounts really help in money laundering post demonetisation?

While the RBI and the government are yet to declare the final numbers on the proportion of scrapped high-value currency notes which have made their way back to the system after 8 November, the available estimates suggest most of the demonetised notes have now been returned belying initial hopes and official pronouncements. This suggests that those who were in possession of undeclared income in the form of high-value notes have found a way to game the system. How they have done so still remains a matter of speculation. One theory that has been doing the rounds is that the rich have laundered their wealth by using PMJDY (Pradhan Mantri Jan Dhan Yojana) bank accounts.

Also read: Demonetisation: Jan Dhan account deposits double to Rs87,000 crore

How credible are such claims? Mint has analysed PMJDY statistics to examine this.

As is to be expected, deposits in Jan Dhan accounts witnessed an abnormal surge immediately after the note ban. However, the trend reversed within five weeks and total deposits started coming down. From a peak value of Rs74,322 crore on 30 November 2016, total deposits in Jan Dhan accounts had come down to Rs70,070.8 crore on 4 January 2017—the latest period for which data is available. Average balance for non-zero balance Jan Dhan accounts also shows a similar trend in this period. This is to be expected assuming that account holders would have first deposited their cash in hand and then withdrawn it, as liquidity conditions eased.

These figures need to be seen in the context that total deposits in Jan Dhan accounts are less than 1% of aggregate deposits in scheduled commercial banks in the country. This figure increased from 0.05% to 0.45% between September 2014 and October 2016, reached a peak of 0.71% in November 2016 and declined to 0.68% again in December 2016, the latest period for which aggregate deposit figures are available.

The continuing miniscule share of PMJDY deposits in overall deposits underlines the fact that Jan Dhan accounts could not have been used for large scale money laundering during this phase.

What about state-wise differences in Jan Dhan account deposits after note-ban? Most states show a spike in average deposits in non-zero balance Jan Dhan accounts in the first few weeks after note ban. While average balance is still higher in all states compared to what it was before November 9, 2016, the values have come down between 29 November 2016 and 4 January 2017. Some news reports had suggested that Maoists in Chhattisgarh were using villagers to park cash in banks, but the Jan Dhan data shows Chhattisgarh has seen among the lowest increases in average balance after the note-ban. In case of Mizoram, data shows total number of accounts declined from 3.7 lakh on 10 November, 2016, to 1.8 lakh on January 4, 2017, leading to an unusual spike.

The prior trends in the Jan Dhan balances across states also do not suggest any largescale foul play. Between 10 February 2016 and 10 November 2016, 28 out of 37 states and union territories saw an increase in average balance in their non-zero balance Jan Dhan accounts, indicating that the accounts were being intensively used even prior to demonetisation.