pmjdy

- Mrunal - http://mrunal.org -[Banking] PM Jan Dhan Yojana: Salient Features, Benets,Limitations & truckload of criticism

Posted ByMrunalOn 13/10/2014 @ 7:45 pm In Economy | 156 CommentsPrologue1.Disturbing numbers2.PMJDY: Salient Features:3.Jan-Dhan: Benets, Pro-Arguments4.Criticism / Anti-Arguments

Multiple accounts to get more insurance1.Money laundering2.Insurance thuggary in small fonts3.BCA model is EPICFAIL4.DBT Epicfail => vicious cycle5.

5.

Mock Questions6.PrologueTopics part of the [Current] series

August: scheme launchedSeptember week3: Rajanbhai nds faults in Jan Dhan scheme whilespeaking in a seminar. Taking cue from him, all the columnists havejumped in a competition who can criticize this scheme more?Disturbing numbers

Lack of nancial inclusion in IndiaOnly59% Of Indian households have bank accounts (Census 2011)50% Of the bank accounts are not operated at all. Most probably thoseaccounts opened part of MNREGA and other campaigns.~46,000 Villages have bank branches. (total villages are above 6 lakhs.)3.3 lakh Villages have Banking Correspondent Agents (BCA) . But this modelis epicfail, well see it further in this article.34% is the average loan interest charged by local money lenders.55% Of Rural Dalit families have to borrow money from localmoneylenders / Shros.

24%Is the average loan-interest rate charged by Privatemicronance institutions (MFIs).by 2010, Micronance agents even started goondagiri torecover loan money, and this model began to decline.

Mrunal (Banking) Prime Minister's Jan Dhan Yojan... http://mrunal.org/2014/10/banking-pm-jan-dhan-y...

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It doesnt mean Government and RBI havent nothing. Since independence, theyhave launched many initiatives for nancial inclusion- Bank Nationalization,Regional Rural banks, cooperative banks, Banking correspondence agent,Swabhiman, Swavlamban, Micronance, No-frills account, 25% rural branchrule, Bharatiya Mahila Bank and so on.You can read more details about them under Mrunal.org/economy particularlyunder the [Nachiket Mor] Committee article series. Anyways, moving on:PMJDY: Salient Features:

Who Department of Financial Services under Finance ministryWhen 15th August 2015Purpose se Financial inclusionTarget Open bank accounts for 7.5 crore families in one year.motto Meraa Khaataa Bhagya Vidhata

PMJDY scheme has 6 pillars in two phases


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Phase 1: Three pillars (2014 to 2015, 15th August)

1.ServiceareaCountry will be divided into sub-service areas (SSA)Each SSA will cover 1000-1500 householdsEach household will have a banking outlet within 5 kmdistance.

2.Account

Each household will have atleast one bank account.Even minors of 10 years and above age, can open.With a Rupay debit cardRs. 1 lakh accident cover per account. Conditions:1 individual and multiple bank accounts = still maximum1 lakh cover1 family, husband-wife separate accounts= each gets 1lakh cover.If you open account before 26th January 2015, youll getadditional Rs.30,000 life insurance cover.If your good credit history for rst 6 months=>Rs.5,000overdraft facility. If same family has multiple accounts thenonly 1 account gets this benet- rst preference to womansaccount.3.Literacy Financial literacy programmes to make juntaa aware of benets ofsaving and investing money properly.

Phase 2: Next Three pillars (2015 to 2018)4.CGF Credit guarantee fund- to cover losses in overdrafts. (Becausesome villagers might use overdraft for desi liquor and thendefault in repayment)5.Insurance If JDY account holder is interested, he can buy micro insuranceproduct.

6.DBT

Earlier Government launched Swavalamban Yojana to makeunorgnized sector workers join NPS scheme.Those people will get NPS-pension directly in these Jan-Dhanaccounts.Government will also try for direct benet transfer (DBT) i.e.sending scheme-subsidy money directly to beneciariesjan-dhan accounts.

How to open Jan Dhan account?


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if you already have a bank account, no need to apply again. Just get aruPay debit card, and you get automatically enrolled into this system.Jan Dhan accounts are put under Core Banking solution (CBS) platform,therefore it can be transferred from one branch to another, as per yourrequest.if you dont have any account, open a new account with any one of thefollowing documents: Aadhar Voters card, Driving licenses, PAN, Passportetc.Small account

If a person doesnt have any ocial documents, still bank can open itsaccount- with just his photo and signature.But such account will be called Small account. RBI has put followingrestrictions on themnot more than 1 lakh rupee loan per year1. cannot withdraw more than 10,000 rupees per month.2. cannot deposit more than 50,000 rupees in account3. Valid for 12 month only.4.Jan-Dhan Yojana: Benets, Pro-Arguments

Will aid nancial inclusion, will rescue villagers from the clutches of evilmoney lenders. You can cite those disturbing numbers to justify your prostand in the group discussion (GD) when other candidates (brainwashed bytheHindu) try to create sh market in GD by criticizing everything underthe sun.Could boost household savings rate similar to Bank Nationalization in1960s.Direct Benet transfer (DBT) money will ow into those accounts (and fromthere again as loans to other needy people.) Thus savings will turn intocapital. Subsidy leakage will decline.Will increase Insurance penetration.Overdraft only after monitoring performance => win-win, rare chances ofNPA/defaults.Jan-Dhan Yojana: Criticism / Anti-Arguments

Prime Ministers Jan Dhan Yojana (PMJDY) will fail because:


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Rajans worry: money laundering and Multiple Accounts in Jan Dhan YojanaMultiple accounts to get more insuranceRajanbhai is concerned that:

Jan Dhan scheme gives Rs. 1 lakh insurance on each account.To get large insurance or overdraft facility, same person might openmultiple accounts in multiple banks- one with Aadhar card, one with PANcard, one with voters card.Sarkaari banks may also overlook nuisance, in order to meet their targets.Recall the earlier article on PJ Nayak Committee. Since Government is themajority shareholder in sakaari banks=> Chairman and board of directorshave pressure from Government => they pressurize bank stas to enrollmaximum bank accounts so that Modi can brag about it during his Madisonsquare speech.RBI suggestion: banks should establish a single information sharingsystem to weed out such multiple accounts.Counter argument: State bank of India has made clear guidelines thateven if multiple accounts of same person, he will get only 1 lakh cover. Andsince all accounts are put under Core banking solution (CBS) platform =duplication / mischief unlikely.Money laundering


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Rajanbhai is also worried that JDY accounts could be used for money launderingand Hawala operations.

SmurngHawala Operators can spilt the whole amount (say 1 crore)into several small units into several JDY accountsThen send money overseas without coming under thewatchful eyes of Income tax or Enforcement directorate.

MoneymulesJust like those Drug mules who ingest condom packed withnarcotic drugs and deliver it to other country via airplanes.Money mules= individuals with JDY accounts, who facilitateHawala operators to send money via their account.

Insurance thuggary in small fontsJan Dhan gives you free accident insurance cover worth Rs.1 lakh.But there is a secret condition- you must use RuPay debit card atleast onceevery 45 days.This is not be possible for poor families in remote tribal areas. So, theylllose the benet due to inactivity.

Why this secret condition?Because insurance money doesnt fall from sky. Even if youre getting it forfree, still someone has to pay the premium, right? In this case, Modi is notpaying the premium. (Because he wants to keep scal decit low).Your premium is paid by NPCI. National Payments Corporation of Indiaowns the rupay card system. Therefore, they want you to frequently use thecard.

BCA model is EPICFAIL


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Just like a coaching walla doesnt nish syllabus if students areless, BCA will run away if commission is lowJan Dhan aims to divide entry country into sub-service areas (SSA)Within those SSA, each household will have a banking outlet within 5 kmdistance.Since banks cannot open branches everywhere, Government aims toachieve this target via Banking Business Correspondence Agents (BCA) orBank Mitra.


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Whatre the Problem with BCA model?They get 2% commission on each transaction. Monthly income ~2000rupees.1. As a result, they quickly lose interest in this game, being some other sidejobs. So, BCA are never available when customer needs them. 47% of theBCA are untraceable. (says RBI survey)

2.

Allegations of malpractice. For exampleFor opening new account, they ask separate 100 rupees as servicecharge (although no bank or RBI has authorized such payment).1. Some BCA ask separate commission / bakshish from illiterate villagersfor withdrawing money from account (beyond the ocial 2%)2. For loan processing too, they demand separate commission, outsidebanks knowledge.3.

3.

Jan-Dhan relies on the failed BC model=> Jan dhan will fail as well.DBT Epicfail => vicious cyclePMJDY aims to make all scheme-subsidy payments directly to Jan-Dhan bankaccounts. But this Direct benet transfer (DBT) itself is a failure because:

Aadhaar project is yet to cover all residents.Aadhar project facing court cases, because UIDAI is not a statutory body,backed by any law.UPA Government had to admit in court that Aadhar-number is notcompulsory get Sarkaari-scheme benets=> Juntaa wont be motivated toget Aadhar cards=> Jan Dhan will have trouble transferring money.AT BCA level, Biometric authentication (nger scan) = showing 25-30%errors. So citizens will have diculty in withdrawing money even if theyveAadhar card.Now if you join the dots

Dot-A BCA will get 2% commission on transactionDot-B DBT will fail = junta wont get much money in Jan-Dhan accounts andthere are ngerprint problem=less transactions.

Dot-C

Prime Minister Modi believes in free-market economy andminimum governance.Similarly state governments too, will reduce their subsidy burdento comply with FRBM act.Gradually, less subsidies on food, fertilizer and fuel. So, even ifDBT works ne, juntaa wont get much money in their accounts=less transaction= less commission to Bank Mitra.

Join Dots A+B+C = BCA (Bank Mitra / Banking correspondence agent) will


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get very low commission, hell lose interest and service quality willdeclining- just like those coaching wallas, who dont nish syllabus if batchstrength is low.Bad customer experience= People cant use Ru-pay cards every 45 days =insurance protection also gone = further negative experience = Jan Dhanaccounts will become dormant. Households will again resume saving moneyin gold or wasting on desi liquor.Misc. Anti arguments

JDY is just old wine (no frills account) in new bottle (Jan Dhan Account).when earlier scheme didnot improve nancial inclusion, there is no chance,new one will succeed.1.

Systematic and well planned reforms necessary- as recommended byNachiket Mor Committee- payment banks, wholesale banks, UEBA etc. ButGovernment is in haste to capture media attention.2.

Counter-argumentsRural incomes will improve because of other Government schemes- skillIndia, make in India etc.So, People will use bank accounts, even if Government gives them nosubsidies / DBT / MNREGA.With penetration of mobile, internet banking and digital literacy, people willbe able to make transactions online. BCA will become irrelevant.

Therefore, even if Aadhar card, DBT or BCA model fails, it is not necessary thatJan Dhan will automatically fail.Mock Questions about PM Jan Dhan Yojana

MCQsIn bank and RBI exams- MCQs about trivial facts and gures. Example-On which day was JDY launched?How many accounts will be opened in one year?How much overdraft oered?What is the motto of this scheme etc.In CSAT-2015: theyll give you a few statements about JDYs salientfeatures. Youll have to nd correct of them. Only 1 and 2; only 1, 2 and4.and so on.

MainsAnswer following in 200 words each

Though ambitious, PMJDY faces certain operational diculties. Elaborate1.


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Discuss the initiatives taken since the independence, for the nancialinclusion of rural families.2. Enumerate the salient features and benets of PMJDY.3.Interview/ GD: PMJDY- pro and anti-arguments. And what steps should betaken to ensure its success.Article printed from Mrunal: http://mrunal.orgURL to article: http://mrunal.org/2014/10/banking-pm-jan-dhan-yojana-account-salient-features-benets-limitations-criticism.html

Copyright 2014 Mrunal. All rights reserved.


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