Government of India launched the Pradhan Mantri Jan Dhan Yojana (PMJDY) yesterday. An estimated 1.5 crore bank accounts were opened through a nationwide enrolment drive held at 77,892 locations, which coincided with the launch.

As part of PMJDY each of the 1.5 crore bank account holders also received a RuPay debit card, Rs 1 lakh accident insurance cover, and an additional Rs 30,000 life insurance cover. The life insurance cover will be provided to all individuals who open the account before January 26, 2015. Under the PMJDY the Indian government plans to open banks accounts for 7.5 crore families by January 26, 2015.

National Payment Corporation of India (NPCI) has built a platform that, reportedly, connects all banks and telecom operators in the country. So far 26 public sector banks and 3 private sector banks have joined this platform. It is expected to enable customers of any bank access their accounts through even basic feature phones. They will be able to check account balance, perform money transfers, among others. In case of Bank Mitras, who will act like fixed point-of-contacts or business correspondents of banks, the platform will also provide support for cash deposits and cash withdrawals.

Impact

-RuPay debit cards will allow a vast majority of the country to carry out point-of-sale (PoS) transactions. This is also likely to lead to an increase in online transactions on e-commerce portals. If the financial literacy programme does materialise at the ground-level, it is likely to provide a further fillip to online transactions. While online transactions have been on the rise in India, a large section of the country still remains wary of it.

-The NPCI built platform, if it functions as planned, will provide a huge boost to mobile banking. While there were 18.42 million smartphones shipments in India in Q2 2014, feature phones still account for 71% of the total mobile phone shipments, according to an IDC report. Individual account holders will be able to check account balance and transfer money through this platform on basic feature phones. And Bank Mitra’s will be able to deposit and withdraw cash on their behalf. However, there’s a catch here. Users will, reportedly, have to pay Rs 1.50 per transaction to use this platform, as indicated by this The Economic Times report.

Downside

-Know your Customers (KYC) norms have been relaxed for opening of bank accounts under PMJDY. Adhaar is not mandatory, though Adhaar-linked accounts will receive additional benefits. However, banks would still need to verify the identity and address of an individual before the account is actually opened. This has always been the stumbling block for extending bank services to a larger section of the country, as most don’t have the requisite documents.

Earlier this month, Reserve Bank of India (RBI) had clarified that small accounts could be opened with banks even without officially valid documents. All that’s required is a self-attested photograph and signature or thumb print. However, the functionality of such accounts would be limited – aggregate credits can’t exceed Rs 1 lakh, withdrawals can’t exceed Rs 10,000 per month, and account balance can’t exceed Rs 50,000. It’s worth noting here that as per new RBI KYC guidelines, NREGA Job cards attested by State Government Official is considered a valid ID proof.

-Mobile/internet connectivity and infrastructure issues still plague a large part of the country. These are essential prerequisites for services under PMJDY to work. Is the Digital India initiative doing enough to tackle these issues?

PMJDY will be implemented in two phases:

Phase I (which apparently started from August 15, 2014)

-Bank branches or Bank Mitras will provide access to banking facilities to every household across the country. However, areas with infrastructure and connectivity constraints seem to be out of the purview of PMJDY.

-As mentioned earlier, in Phase I each household is supposed to be provided with one basic banking account, along with a RuPay debit card and Rs 1 lakh accident insurance cover. Adhaar enabled account holders will be permitted to use an overdraft facility of up to Rs 5000, after satisfactory operation of the account for a period of 6 months.

-Apparently, a village-level financial literacy programme will also be part of PMJDY’s Phase I.

-There are plans to connect Direct Benefit Transfers under various government schemes (like MNREGA) directly to the PMJDY bank accounts of the beneficiaries.

-The government has proposed that Kisan Credit Cards as RuPay Kisan Card will be brought under the purview of this plan.

Phase II (no fixed starting date has been announced, but likely to be carried out between 2015 & 2018)

-Micro-finance scheme.

-Pension schemes for the unorganised sector, to be administered by respective Bank Mitras.

-Enabling of electronic transfer of subsidies under various government schemes.

The schemes under Phase II seem to be proposals and not concrete plans. A clearer picture is expected on completion of Phase I, though no clear deadline has been fixed yet.

What others are saying

A NitiCentral report says that in rural areas, which lack basic infrastructure, banks face high costs of customer acquisition; high potential transactions costs of micropayments; and large expenditures on infrastructure and IT.

India Microfinance.com reports that holders of small accounts opened without any valid ID proof need to provide a valid address proof within 6 months of opening the account.

Moneycontrol.com reports that banks are expected to be paid about 3% for the services rendered under PMJDY, citing GS Sandhu, Secretary, Department of Financial Service.