Source- Financial Express


Key to this is getting account-holders to use their accounts regularly


A new financial inclusion plan has been launched; with the Pradhan Mantri Jan Dhan Yojana (PMJDY), every Indian household is to have a bank account within a year. Can the government pull off such an ambitious plan?

Let’s begin with coverage targets. India has around 6 lakh villages—banking presence has expanded from 67,694 villages in March 2010 to 3,83,304 villages as of March 2014. Under the previous financial inclusion plan, it took a massive effort from banks in the past three years to reach the larger, unbanked villages, and the smaller, 4,90,000 unbanked villages (with population less than 2,000) were to be covered by 2016. Now, the target is set at the household-level, not villages—this changes the ball game completely for banks and business correspondents. Census 2011 estimates 10 crore households that were not accessing banking services; of these, around 2.5 crore are in urban areas and should be relatively accessible to banks, while reaching households off the highways will be the big challenge. Yet, on the launch date, the programme held more than 75,000 camps across the country and reportedly opened more than a crore accounts and the aim, says the PM now, is to reach the target before January 26, 2015, the coming Republic Day. Of course, with legal strictures preventing the use of Census household data to target specific households, the possibility of some overlap cannot be denied, given the camp mode of this mission.

Let us say that banks and business correspondents do make this absolutely massive effort, manage to reach each and every household and issue an account, with a RuPay Debit card, as per the plan. What next? There are two parts to inclusion. One part is getting the network of physical infrastructure in place—banks, business correspondents, ATM/POS terminals to use these debit cards, power and digital connectivity, etc—while the second part is getting the unbanked to use the services confidently and frequently. For the first part, just putting people and networks in place will not do the trick. More than 15 crore accounts were opened under the previous mission, of which RBI recognises half as dormant. While power and digital connectivity have to be reliable for ensuring transactions, agents and banks have to find the business viable to keep them going. If we go by the track record, then we will now see a massive leap in the number of agents, accounts, ATM/POS terminals, but no proportionate jump in actual transactions. Getting account-holders to use the accounts and ensuring agents stay in the system are two sides of the same coin; if the government can, therefore, pull off the second part of inclusion—getting the hitherto unbanked to use the services—that will be a real game-changer for the economy.

Imagine getting a cell phone to every household, including those seen on television only when the elections are near; then imagine teaching such people to use the phone, while making sure that power and network connectivity stay 24X7, and telcos and their retail agents find the business profitable. Banking takes more than this, and this is the challenge Modi refers to when he talks of ending financial untouchability. All this will need financing; these costs are not being detailed now. The massive expense would be vindicated only if and when these households integrate with the system, and the banking system finds the channel viable.

To get there, there are many coordination problems to fix—between telcos and banks, banks and BCs, various government departments, the multitude of regulators … the list is long. The question is, will everyone work together, as the PM is pushing for, or will each protect their turf and try to nudge the other out? For instance, the National Unified USSD Platform, launched by the PM during the PMJDY inauguration, is not new. It has taken more than two years of negotiation and regulatory intervention from RBI and Trai to get the telcos, banks and the National Payments Corporation of India (NPCI) to work out satisfactory terms for using the system. The film shown during the launch spoke of easy authentication through the Aadhaar, but using this platform to its potential calls for sorting out the legal imbroglio, which needs political consensus.

When it comes to thinking big and generating energy at the last mile, Modi has already proved himself. Will everyone come on board now, is the question!