Delivery, infrastructure key for Jan Dhan Yojana success

The success of the Jan Dhan Yojana announced by Prime Minister Narendra Modi would depend on how fast financial service providers improve their delivery, financial sector executives said.

The scheme aims to help the poor open bank accounts with a debit card and an accident insurance of Rs 1 lakh.

In his Independence Day address, Modi said, “We want to integrate the poorest of the poor with bank accounts through the Pradhan Mantri Jan Dhan Yojana.”

State Bank of India Chairperson Arundhati Bhattacharya said the scale of the financial inclusion challenge was evident from the fact only 58.7 per cent of households in India availed of banking services. Welcoming the scheme, she said with rapid financial inclusion, the use of cash would decline in India.

The launch of the Sansad Adarsh Gram Yojana would also encourage development of smart villages to co-exist with smart cities. Insurance executives said this scheme would not only help them reach new regions, it would also boost penetration in the non-life segment. Non-life insurance  premiums as a percentage of gross domestic product in India are 0.8 per cent against the world average of 2.8 per cent, according to a recent Swiss Re study.

G Srinivasan, chairman and managing director of New India Assurance, said public sector general insurance companies would play a major role in the financial inclusion initiative of the government. “We will use our micro-offices across the country and also use our network of business correspondents to provide insurance cover,” he said.

The Cabinet has already cleared a two-phase financial inclusion scheme in which bank accounts will be opened for 150 million poor persons with an overdraft facility of Rs 5,000 and accident insurance of Rs 1 lakh. Each of the 75 million identified families will have two bank accounts.

“I think it is a step in the right direction, but the existing infrastructure may not be able to support it. We need more players in the financial ecosystem to be able to achieve the programmes that are being announced. The supply side may not be able to match the diversity,” said Shinjini Kumar, leader, banking and capital markets, PwC India.

Banks have already embarked on financial inclusion and in the first phase, they were advised to draw up a roadmap for providing services in every village with a population of over 2,000 on March 2010. Banks have covered over 75,000 unbanked villages.

“On the debit card and the insurance front, it is good that it is customer centric. But we need to have the infrastructure and architecture to make it successful. For instance, debit cards will require ATMs and merchant acquiring mechanisms and insurance will require delivery mechanisms,” Kumar added.

In the second phase, a roadmap has been prepared for covering the remaining unbanked villages. About 4,90,000 unbanked villages with less than 2,000 people have been identified and allotted to various banks.

R K Bansal, executive director, IDBI Bank, said, "Banks have already embarked on the journey of financial inclusion but it will take time to achieve what has been set out. So we have to continue doing what we are doing, expanding via branches and business correspondents, but now we need to be more aggressive."

Industry officials said while bank accounts would be opened in the first stage, insurance would come in the second phase. Though public sector companies would provide accident insurance initially, sources said this would be opened up to private insurers after a while.

The United Progressive Alliance government had proposed all towns with populations of over 10,000 have an office of Life Insurance Corporation (LIC) and at least one public sector general insurance company by March 2014.

After this announcement, the public sector insurers had opened more than 3,000 offices in 2013-14 in smaller towns. These offices are small establishments with one or two people.

The government is using Census 2011 as the basis for the financial inclusion plan. Of the 246.7 million households in the country, 144.8 million have access to banking. In 2013, 14 state-run banks set up 7,840 branches across the country, one in four in the countryside.