piggy bank

At an event in Washington DC, India’s finance minister Arun Jaitley said that over 80% of 25 crore bank accounts opened in the Jan Dhan Yojana were functional and had cash in them. According to the Jan Dhan Yojana website, the total number of accounts stands at 24.98 crore. The percentage of zero balance accounts stood at 23.67% as of October 5. These accounts also had Rs 44,221.27 crore in them in total with accounts opened by public sector banks contributing a major part to them with Rs 35,137.79 crore.

The government has been pushing its financial inclusion agenda through the Jan Dhan accounts and subsidies for fuel, fertilizer and food have been getting transferred into these accounts.

However, a report from the Indian Express paints a completely different picture on what is happening with Jan Dhan accounts. The publication said that a huge of the accounts opened through public sector banks have been dressing up their data to show lower number of zero balance accounts.

The report added that public sector banks have been adding Re 1 in these accounts to give the appearance that they are being used by people. RTI information from 18 public sector banks and 16 regional banks showed 1.05 crore accounts only held Re 1 balance in them. There were a few cases where Rs 5 or Rs 10 was deposited by banks.

The Indian Express also interviewed a number of bank officials where they explained that the funds for boosting these accounts came from  entertainment allowance, conveyance allowance, canteen subsidy, office maintenance funds, and fee obtained for Demand Drafts and online transfers.

What about private sector banks: Indeed, data from the Jan Dhan’s website shows that the number of zero balance account was higher at 36.11% while the total balance in Jan Dhan accounts opened by them stood at Rs 1,604.41 crore. The total number of Jan Dhan accounts stood at 0.86 crore.

Aadhaar seeding: Data also showed 13.05 crore accounts were linked with Aadhaar cards. Public sector banks continued to lead with 10.86 crore, followed by regional rural banks and private banks with 1.86 crore and 36 lakh.

MediaNama’s take

The government’s push for financial inclusion through bank accounts is admirable. However, its implementation needs to be sorted out and get people to actually use the accounts. An ideal way to make sure that these accounts get used is to make sure that subsidies and direct benefit transfers (DBT) need to go to these accounts.

But first, the government needs to get past its impasse with the Supreme Court which said that Aadhaar cannot be made mandatory for benefits. The government on its part, said that most concerns that the Supreme Court raised were addressed or were being addressed.  Law minsiter Ravi Shankar Prasad said that it addressed the SC’s concern that Aadhaar had no statuary backing by providing a legal framework and guidelines.

In July, government notified the Aadhaar Act 2016, which would make it mandatory for people to acquire an Aadhaar card to avail  financial subsidies and benefits. This operationalized the Act and gave it a legal framework for the issuance and use of the Aadhaar. Following this, there must be a huge awareness campaign to educate people about the benefits of storing money in a bank  account and encourage savings.

I heard an interesting anecdote from someone who was involved in the financial inclusion space. In a village in Odisha, two liquor shops closed down after a banking correspondent started operations actively. The women in the village were encouraged to put daily wages in bank accounts before they went back to their homes. Their husbands then did not have money to buy alcohol and incidents of violence against women also decreased.

Financial inclusion must be implemented in a far more holistic way and not be used to dress up figures to support the government’s position.