Mumbai: The central government will likely bear the premium cost for the life insurance cover that comes as an incentive with every account opened under Pradhan Mantri Jan Dhan Yojana (PMJDY), the financial inclusion plan under which banks have been asked to open 75 million accounts by 26 January.
The premium cost for the insurance plan works out to ₹ 100-150 per person, which means government will have to shell out ₹ 750-1,125 crore for the insurance coverage.
Life Insurance Corp. of India Ltd, country’s biggest insurer, has ruled out bearing this cost, according to three people aware of the discussions that took place on 1 September between the finance ministry, LIC, Indian Banks’ Association (IBA) and National Payments Corp. of India Ltd (NPCI).
NPCI, a Reserve Bank of India (RBI) promoted organization, will bear the cost for the accident cover that comes with every Rupay-enabled card, according to people cited above. Rupay is the payment gateway developed by NPCI.
Every account holder under the scheme will be eligible for a ₹ 30,000 life insurance cover and ₹ 1 lakh in accident insurance.
Other than the costs linked to providing insurance, any additional costs involved in reaching out to the unbanked population will have to be borne by banks, and banks expect such costs to be offset by increased deposits.
Just two weeks into the scheme, banks have already mobilized ₹ 200 crore as deposits from the freshly opened accounts, the IBA has estimated.
“Banks are not complaining, already banks have raised ₹ 200 crore under the scheme, and much more is in the offing," said an IBA official, requesting anonymity.
However, banks say they are facing logistical issues that need to be addressed by the government immediately if the exercise has to be completed in a time-bound manner.
“The biggest problem we are facing is that of connectivity. Our banking correspondents are not able to reach those villages in a time-bound manner, and they are not even able to use the point of sales machines. We have told the government to address the connectivity issue on a priority basis," the chairman of a mid-sized public sector bank said, declining to be identified.
Opening bank branches or even installing micro-automated teller machines in these areas is next to impossible for the want of electricity, bankers have told the government.
While issues of connectivity and power may be tough to address immediately, the government on its part has promised to give banks subsidized land on lease for opening branches. To incentivize banks to open branches, space can be given for a rent of as low as ₹ 5,000-10,000 per year, the government has told lenders.
“It is not a very difficult objective but a lot of initiative has to come from both sides. Banks are ready to go anywhere, provided the government makes it convenient for banks to go there," the bank chairman cited above said.
Besides the benefit of deposit mobilization from the rural areas, banks are also hoping that all funds from welfare schemes would flow through these accounts, which will help banks boost their fee income. They might get 2-3% commission on amount that they will process under direct benefit schemes.
Routing the direct-benefit transfers through these accounts will also help keep such accounts active. Going by previous experience, bankers say at least 70% of the no-frills accounts opened in the past have remained inoperative.
It is not yet clear what will be the status of the previously opened inoperative accounts, and whether those account holders will be given a chance to open another account under PMJDY, or if they would be allowed to merge both the accounts into one.
“One problem that we are facing is that lot of previous no-frills account holders are coming to us for opening new accounts, for whatever reasons. In most cases, the previous accounts are non-functional and were never linked to Aadhaar cards. Now they are coming with their Aadhaar cards to open new accounts," said a general manager in charge of priority sector with a public sector bank.