Representative image. Credit: PTI
New Delhi: Are officials of India’s public sector banks taking steps to hide the flaws of Prime Minister Narendra Modi’s Jan Dhan Yojana (JDY) initiative?
On Tuesday, The Indian Express reported that a group of right public sector banks and 16 of their regional subsidiaries “held 1.05 crore Jan Dhan accounts with deposits of Re 1.” A good majority of these Re 1 deposits, Indian Express found from its on-ground coverage across six states, may have have been carried out by bank officials and managers after receiving “pressure” from “higher ups” to show that the number of zero-balance accounts has been falling.
The report shows how Punjab National Bank (1.36 crore JDY accounts), Bank of Baroda (1.4 crore JDY accounts) and UCO Bank (74.6 lakh JDY accounts) are the worst offenders when it comes to Re 1 JDY accounts. Nearly 30% of PNB’s JDY accounts have deposits of Re 1, while UCO and Bank of Baroda have 14.8% and 9.26% respectively.
In most cases, the bank account holders are puzzled as to who exactly deposited Re 1 in their accounts. “In my branch, nearly 1,000 accounts were opened. Due to pressure from the top level, I deposited Re 1 in many of those accounts myself,” a Bank of Baroda official in Bareilly was quoted as saying in the report.
The money for the Re 1-Rs 10 deposits are “usually sourced from various perks and other expenditure heads” that come under the bank branch’s jurisdiction. In most cases it comes out of the canteen subsidy, office maintenance funds or conveyance allowance allotted to a specific branch.
Smoke and mirrors
Why does this “zero-rupee trick” need to be done in the first place? Earlier this year, The Wire laid out the idea behind and the potential pitfalls of Modi’s massive JDY financial inclusion project. The rationale behind the larger JAM (Jan Dhan – Aadhaar – Mobile) initiative is that the government opens bank accounts for the unbanked. These accounts will be seeded with Aadhaar numbers, allowing for subsidy transfers and with mobile phones, the whole picture comes together.
Unfortunately, account dormancy and account duplication are huge flaws of the JDY project. Government data and third-party surveys indicated in February that nearly 30% of the 22 crore accounts that have been opened are “dormant” – that is, nearly 7 crore bank accounts have zero-balances and minimal transactional activity.
Why are so many accounts have zero balance and are not used? One theory states that a good majority of these 7 crore bank accounts could be duplicate accounts. Or in other words, many holders of zero-bank accounts might already have an existing bank account but have signed up for a JDY account nevertheless. Another theory points to a greater flaw of the JDY initiative: many analysts and researchers believe that without a proper ecosystem of rural banking products, the so-called unbanked and financially excluded have no reason to use their JDY bank accounts in a meaningful manner.
Simple chicanery
The Indian Express’ numbers come at a crucial juncture: Government data over the last six months indicates that total percentage of zero-bank accounts has dropped from 28-29% to 24.4%, even as the number of JDY bank accounts has increased from 22 crore accounts 24.27 crore accounts.
Some of this drop in zero-balance accounts could come from Re. 1 deposits — although it would be difficult to say this plays a huge role. Nevertheless, it underscores the fact that the Modi government seriously needs to address the twin problems of account duplication (and the consequent problems of Aadhaar seeding) and the lack of a rural banking product ecosystem.