PM Jan Dhan Yojana – An Era Of Financial Inclusion

In his first Independence Day address as the Prime Minister of India, Mr. Narendra Modi announced that his government would ensure that all the citizens of India have access to bank accounts and debit cards. In keeping with this ambition, on August 28, 2014, PM Mr. Modi formally launched the Pradhan Mantri Jan Dhan Yojana – the scheme that should end ‘financial untouchability’ of the poor masses in the country. The project has been modeled to fulfill PM Modi’s vision of financial inclusion and economic benefits for all sections of Indian society.

What is Pradhan Mantri Jan Dhan Yojana?

The Pradhan Mantri Jan Dhan Yojana (PMJDY) is a scheme that aims to provide all the citizens of India – especially the poor masses – a bank account, insurance cover, and debit card facilities. The aim of this scheme is highlighted by its slogan “Mera Khata – Bhagya Vidhaata”. In the long run, the scheme will also allow the poorer sections to avail of subsidies and overdraft facilities through their bank accounts.

Why is this scheme important?

In India, about 42 percent of the population lacks access to a formal financial institution such as a bank and is not part of the country’s banking system. This population depends on local money lenders for loans which are often given at exorbitant interest rates and unfair terms. Without access to a basic bank account, facilities such as insurance cover and debit cards remain a far cry to this section of the population. The PM Jan Dhan Yojana is set to change this scenario. In the long term, this scheme will also provide the backdrop for a cashless economy – another focal point of the Prime Minister’s I-Day address (Digital India).

Benefits of the PMJDY

According to the terms of the PMJDY, the account holders will be provided a zero-balance savings account with a RuPay debit card. The account holder will also be provided life insurance cover of INR 30,000 (for accounts opened before January 26, 2015) and an accidental insurance cover of INR 1 lakh. By 2018, it is likely that all account holders under the PMJDY scheme will have access to an Aadhar-linked bank account with overdraft facility up to INR 5,000. By allowing direct money transfer into bank accounts, the scheme is likely to cut down on corruption. The Prime Minister also said that by providing debit cards that can be swiped the scheme shall reduce the dependence on credit cards, thereby promoting savings.

Implementation of the scheme

The PMO has sent out over 7.25 lakh emails signed by Mr. Modi himself to banking officials across the country seeking their cooperation in the successful implementation of this scheme. 77,862 enrolment camps will be opened up across India to create awareness and to facilitate opening of bank accounts. The launch function was held in 76 main cities including Bharuch, Bilaspur, Dehradun, Gandhinagar, Guwahati, Mumbai, Muzaffarpur, Panjim, Patna, Port Blair, Raipur, Surat, and Vizag.

The implementation of the PMJDY is to be carried out in two phases. The first phase is likely to last between August 2014 and August 2015, while the second phase between 2015 and 2018. By 2018, about 7.5 crore households (15 crore bank accounts) will have bank accounts. In the second phase, the government will also make pension schemes available to these account holders.

Launching the PMJDY

On August 28, 2014, the day of the scheme’s launch, over 1.5 crore bank accounts were opened across India. This is certifiably the largest exercise of this nature on a single day across globe. The Chief Ministers of about 20 states and several Union Ministers participated in the lauch ceremony in different cities of India. HRD Minister Smriti Irani launched the scheme at Surat, External Affairs Minister Sushma Swaraj launched it at Bhopal, Information Minister Prakash Javadekar launched it at Pune, and Home Minister Rajnath Singh was present at the Lucknow launch function. On the occasion of the launch of the scheme, the Prime Minister said, “If Mahatma Gandhi worked to remove social untouchability, if we want to get rid of poverty, then we have to first get rid of financial untouchability. We have to connect every person with the financial system. And for that this programme has been given impetus. When a bank account is opened, it’s a step towards joining economic mainstream.”

What about KYC?

Prior to the launch of the PMJDY, the Reserve Bank of India relaxed its stringent ‘know your customer’ (KYC) norms. Low-risk customers will now have the leeway to provide KYC documents within six months of opening a bank account. In accordance with the PMJDY, ‘small accounts’ may be opened with banks by those who do not hold ‘officially valid documents’ that are required under current KYC norms. All that shall be required to open these accounts is a self-attested photograph and the signature or thumb print of the person applying for the account. These accounts, however, will be subject to certain limitations – total deposits may not exceed INR 100000 in a year and total withdrawals cannot be over INR 10000 a month. The account balance in these accounts may not exceed INR 50000 at any point in time. According to the RBI, these small accounts will be valid for a year. Within this period, if the account holder applies for one of the KYC’s acceptable official documents, the account will be allowed to exist for another year.

The Prime minister said that with the launch, the momentum of inclusive financial networking should gain momentum (Gadi apne aap chalne lagti hain). With new branches, new infrastructure, new jobs should also be generated. The scheme has, however, attracted criticism from some quarters. The Hindi nomenclature of the scheme has also been criticized.