PMJDY Year-end Update

Posted on December 30, 2015 by Sumita Kale

The Pradhan Mantri Jan Dhan Yojana has made notable strides since it was launched in August 2014By 16th December 2015, 19.6 crore bank accounts had been opened with RuPay Cards given to 16.73 crore accountsThe total balance in these accounts has crossed Rs28,000 crores and the share of zero balance accounts has steadily declined to less than 34% now.

Pradhan Mantri Jan - Dhan Yojana

(Accounts Opened as on 16.12.2015)

(All Figures in Crores)

Statistics available on the PMJDY website now include the status of transaction readiness at Bank Mitras

Position of BankMitra Infrastructure 

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Report of the RBI Committee on Medium Path on Financial Inclusion

Posted on December 29, 2015 by Sumita Kale

The RBI Committee on Medium-term Path on Financial Inclusion, set up in July 2015, has delivered its report on 28th December. Comments can be emailed or sent by post to the Principal Chief General Manager, Reserve Bank of India, Financial Inclusion and Development Department, 10th Floor, Central Office Building, Shahid Bhagat Singh Marg, Mumbai-400001 by January 29, 2016.

The recommendations are comprehensive, looking to provide a full basket of financial services to the financially excluded and highlights the issues faced by farmers, MSMEs and women.

Banks have been asked to integrate the Business Correspondents in their business models, train and monitor their activity more closely and give greater responsibilities to those agents who are performing well.

The role of PrePaid Payment Issuers (PPIs) in expanding the payments network has been acknowledged, recommending a low value cash-out to be allowed with adequate KYC safeguards, and more critically interoperability to build a larger payments ecosystem.

The use of Aadhaar has been recommended as a unique identifier to build up credit history, share information etc - however, there is no mention in the Report of the urgency to give Aadhaar a stronger legal backing.

The Committee also recommends changing the focus of policy discussions in SLBCs from the credit-deposit (CD) ratio to the development aspects for which the CD ratio could be a by-productThese can include livelihood models, social cash transfer issues, gender inclusion, inclusion of different groups, Aadhaar seeding and universal account openingOther  region-specific issues should also be the target of the SLBCs, apart from  focus on areas such as policy towards fraudulent deposit/ investment schemes, physical/network infrastructure and recovery management.

The full report can be read at this link https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/FFIRA27F4530706A41A0BC394D01CB4892CC.PDF

The Main Recommendations as summarised in the RBI Press Release are as follows:

• Banks have to make special efforts to step up account opening for females, and the Government may consider a deposit scheme for the girl child – Sukanya Shiksha - as a welfare measure.
• Given the predominance of individual account holdings (94 per cent of total credit accounts), a unique biometric identifier such as Aadhaar should be linked to each individual credit account and the information shared with credit information companies to enhance the stability of the credit system and improve access.
• To improve ‘last mile’ service delivery and to translate financial access into enhanced convenience and usage, a low-cost solution should be developed by utilisation of the mobile banking facility for maximum possible G2P payments.
• In order to increase formal credit supply to all agrarian segments, digitisation of land records is the way forwardThis should be backed by an Aadhaar-linked mechanism for Credit Eligibility Certificates to facilitate credit flow to actual cultivators.
• To phase out the agricultural interest subvention scheme which has distorted the agricultural credit system and ploughing the subsidy amount into an affordable technology aided universal crop insurance scheme for marginal and small farmers for all crops with a monetary ceiling of Rs.200,000 at a nominal premium to end agrarian distress.
• A scheme of ‘Gold KCC’ (kisan credit card) with higher flexibility for borrowers with prompt repayment records, which could be dovetailed with a government-sponsored personal insurance, and digitisation of KCC to track expenditure pattern.
• Encourage multiple guarantee agencies to provide credit guarantees in niche areas for micro and small enterprises (MSEs), and explore possibilities for counter guarantee and re-insurance.
• Introduction of a system of unique identification for all MSME borrowers and sharing of such information with credit bureaus.
• Establishing a system of professional credit intermediaries/advisors for MSMEs to help both the sector banks in credit assessment.
• To further step up financing of the MSE Sector a framework for movable collateral registry may be introduced.
• Commercial banks may be enabled to open specialised interest-free windows with simple products like demand deposits, agency and participation certificates on the liability side and cost-plus financing and deferred payment, deferred delivery contracts on the asset side.
• An eco-system comprising multiple models should be encouraged with will foster partnerships amongst national full-service banks, regional banks of various types, NBFCs, semi-formal financial institutions, as well as the newly-licensed payments banks and small finance banks.
• Banks’ business model to integrate Business Correspondents (BCs) with appropriate monitoring by designated link branches and greater mix of fixed location BC outlets to win the confidence of the common person.
• Introduction of a system of online registration of BCs, their training and monitoring their activity including delinquency, and entrusting more complex financial products such as credit to trained BCs with good track record.
• A geographical information system (GIS) to map all banking access points.
• To step up the self help group (SHG)-bank linkage programme (SBLP) initiated by NABARD with the help of concerned stakeholders including government agencies as a livelihood model.
• Corporates should be encouraged to nurture SHGs as part of their Corporate Social Responsibility (CSR) initiatives.
• Provision of credit history of all SHG members by linking with individual Aadhaar numbers to check over-indebtedness
• To restore tax-exempt status for securitisation vehicles for efficient risk transfer.
• More ATMs in rural and semi-urban centres, interoperability of micro ATMs and use of application-based mobiles as point- of- sale (PoS) for creating more touch points for customers.
• National Payments Corporation of India (NPCI) to develop a multi-lingual mobile application for customers who use non-smart phones, especially for users of national unified USSD platform (NUUP).
• Permit a small-value cash-out with adequate KYC along for non-bank prepaid payment instruments (PPIs) to incentivise usage.
• To allow PPI interoperability for non-banks.
• Levying a surcharge on credit card transactions by merchant establishments should not be allowed.
• Banks to complete the task of linking of deposit accounts with Aadhaar in a time bound manner so as to create the necessary eco-system for social cash transfer.
• Financial Literacy Centre (FLC) network to be strengthened to deliver basic financial literacy at the ground levelBanks to identify lead literacy officers to be trained by the Reserve Bank in its College of Agricultural Banking (CAB) who in turn could train the people manning the FLCs.
• The Reserve Bank to commission periodic dipstick surveys across states to ascertain the extent of financial literacy.
• All regulated entities should be required to put in place a technology-based platform for SMS acknowledgement and disposal of customer complaints.
• To strengthen the Information Monitoring System for District Consultative Committees (DCC) and State Level Bankers Committee (SLBC) deliberations.
• The responsibility of the SLBC/lead bank scheme to be rotated among to instil a spirit of competition.
• SLBCs to focus more on inter-institutional issues, livelihood models, social cash transfer, gender inclusion, Aadhaar seeding, universal account opening, and less on credit deposit ratio which is a by-product.
• As a part of second generation reforms, the government can replace the current agricultural input subsidies on fertilisers, power and irrigation by a direct income transfer scheme.

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PMJDY is making a difference: Results from Surveys

Posted on December 29, 2015 by Sumita Kale

While the PMJDY website gives detailed information on the aggregate status of the mission, there is often sceptism over its real impact on the groundTwo surveys conducted in 2015 prove that the PMJDY is making a significant difference, though there is lots more to be done.

1Analysis of large sample data for PMJDY accounts in State Bank of India (SBI) by Soumya Kanti Ghosh (Chief Economic Adviser, SBI) and Pulak Ghosh (IIM,Bangalore) shows interesting positive trends of account usage (TOI, October 30,2015):

• Average number of active accounts (defined as at least one transaction per month) has grown 25 times between August 2014 and May 2015, while dormant accounts multiplied by 10 times.
• The main push in active accounts for rural areas is from the west, followed by the northSemi-urban regions in the east and south are also showing an exponential growth.
• "Active of the active accounts i.ewith more than two transactions a month rose from 0% to 16% in the rural east and from 4% to 15% in rural north over the period studied.
• Average balance in rural regions has increased from Rs 250 to around Rs 2,000 over the period – here the east leads, followed by the westAverage balance in rural east (close to Rs 3,000) is even higher than in metro east, indicating the huge untapped potential of this part of India.
• In rural east, remittances now constitute nearly two-third of the total credit deposit as against virtually non-existent transfers in August 2014Rural south has similar trends, while cash is the increasing trend in rural west and rural north.

2MicroSave's PMJDY Assessment Round 2: Well Begun is Job Half Done took place during April-May 2015 and showed the following results for Bank Mitras (BMs):

• Transaction readiness of BMs (capability to conduct deposits, withdrawals and account opening) has improved significantly to 79% as compared to 54% in round one.
• Dormancy (the case of a BM completely abandoning his/her role as an agent or ceasing to offer financial services for some time) has decreased marginally from 8.4% to 7.9%.
• 78% of BMs are providing services to customers in more than one village, of which 34% BMs are providing services in more than 5 villages.
• 69% devices at BM outlets are Aadhaar enabled and 39% devices are RuPay enabled.
• The majority (71%) of BMs receive a completely variable commission on the basis of business done in a month29% receive a minimum fixed amount plus variable commissionThe fixed amount varies by bank/business correspondent network manager (BCNM).
• BMs across all banks are earning 45% higher average monthly income (Rs.3,951) as compared to the last round (Rs.2,724)However, there are wide variations in individual BMs’ incomes, which has resulted in high levels of dissatisfaction among a large number of BMs.
• BM dissatisfaction level goes down as the longer they have been in the systemThis leads to high churn - only 41% of the BMs are more than 18 months old.
• Capacity building of BMs is a weak area and does not seem to be a priority for banks/BCNMs41% BMs have been trained just once, either at the time of joining or later; 14% of BMs have not received training even once.
• Monitoring of BMs by banks and BCNMs continues to be weak - 44% BMs mentioned that either no bank official had ever visited them or they had been visited just once in a year.
• 86% customers report that the PMJDY account is their first accountThis percentage has remained unchanged since the first round.
• BMs are the main source of scheme related information for customers80% of the customers came to know about PMJDY through BMs.
• Only 24% of PMJDY account holders have received financial literacy training; BMs trained of 84% these.
• BMs are the first choice over ATM and bank branches for 70% of the customers when choosing their point of transaction. 

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