The success of the ‘Jan Dhan Yojana’ that was announced by Prime Minister Narendra Modi will depend on the how fast the financial service providers improve their delivery mechanism and the overall financial infrastructure, financial sector executives say.
The scheme is aimed at helping the poor to open bank accounts which will come with the facility of a debit card and an accident insurance cover of Rs 1 lakh. This will provide financial aid to the family in case of any unforeseen eventuality.
Observing that people have mobile phones but not bank accounts, Modi said, “We want to integrate the poorest of the poor with bank accounts with Pradhan Mantri Jan Dhan Yojana,” in his maiden Independence Day address to the nation.
No one has any doubts that the scheme is a much-neeed one. State Bank of India Chairman Arundhati Bhattacharya said the magnitude of challenge under financial inclusion was evident from the fact only 58.7 per cent of households in India availed of banking services. Welcoming the scheme, she said with such a rapid financial inclusion, the usage of cash would decline in India in line with developed countries like UK (2 per cent), Australia (3 per cent), and Japan (6 per cent). The launch of the Sansad Adarsh Gram Yojana would also encourage development of smart villages that would effectively co-exist with smart cities as underlined in the Budget
Insurance executives said that this scheme would not only help them reach newer regions, it would also boost penetration in the non-life segment. At present, non-life insurance penetration (premium as percentage of gross domestic product) stands at 0.8 per cent compared to the world average of 2.8 per cent, as per the recent Swiss re Sigma study.
G Srinivasan, chairman and managing director of New India Assurance, said that the public sector general insurance companies would play a major role in the financial inclusion initiative of the government.
“We will use our micro-offices that have been set up across the country and also use the network of business correspondents to provide insurance cover,” he said.
The Cabinet has already cleared the two-phase financial inclusion scheme under which bank accounts will be opened for 150 million poor persons with an overdraft facility of Rs 5,000 and accident insurance of Rs 1 lakh. Each of the 75 million identified families would have two bank accounts.
“I think it is a step in the right direction but the existing infrastructure may not be able to support it. We need more players in the financial ecosystem to be able to achieve the programmes that are being announced. The supply side that we have right now is very standard and may not be able to match the diversity,” said Shinjini Kumar, leader, banking and capital markets, PwC India.
Banks have already embarked on the journey of financial inclusion and in the first phase, banks were advised to draw up a roadmap for providing banking services in every village having a population of over 2,000 by March 2010. Banks have covered over 75,000 unbanked villages.
“On the debit card and the insurance front, it is good that it is customer centric. But we need to have a valid infrastructure and the architecture to make it successful. For instance, debit cards will require ATM and merchant acquiring mechanism and insurance will require delivery mechanism,” Kumar added.
In the second phase, a roadmap has been prepared for covering remaining unbanked villages that is with population less than 2000. About 4,90,000 unbanked villages with less than 2000 population across the country have been identified and allotted to various banks.
R K Bansal, Executive Director, IDBI Bank said, “Banks have already embarked on the journey of financial inclusion but it will take time to achieve what has been set out. So we have to continue doing what we are, expanding via branches and business correspondents, but be more aggressive on it.”
Industry officials said that while bank accounts would be opened in the first stage, insurance will come in the second phase. Though public general insurers will provide accident insurance in the initial phases, insurance executives said that it would be opened up to private general insurers after a certain period.
Going forward, Srinivasan also added that they will play a larger role in increasing the reach of insurance to every single person in the country.
The earlier UPA-led government too proposed that all towns with a population of 10,000 or more to have an office of Life Insurance Corporation of India (LIC) and at least one public sector general insurance company by March 2014.
Post this announcement, all public insurers put together had opened more than 3000 offices in FY14 in smaller towns to meet the insurance needs of the local populations. These offices are smaller establishments with one or two people.
The government is using Census 2011 as basis for the financial inclusion plan. Of the 246.7 million households in the country, 144.8 million have access to banking. In 2013, 14 state-run banks set up 7,840 branches across the country, one in four in the countryside.