Banking for the Poor

The Prime Minister’s Jan Dhan scheme is being touted as a ‘100 percent success’ in Assam. Nearly 42 lakh bank accounts have been opened in the State, almost three-fourth in rural areas. The total deposit mopped up is Rs 329 crore, according to the 28 public and private sectors banks participating in the mammoth exercise. This is in line with Prime Minister rendra Modi’s exhortation to the banking sector to improve upon the work done, with already Rs 14,000 crore deposited through new accounts. But the Prime Minister has also put up a daunting wish-list to the Reserve Bank on its 80th year. He has begun by calling upon the apex bank to ‘give up its fear of non-performing loans’, while lending to the poor and margilised sections, long excluded from the formal fincial system. By 2035, every household in India should have access to banking services; banks should give loans to margil farmers so that they do not have to commit suicide after falling into the clutches of extortiote moneylenders; farmers should be bankrolled to grow more trees to reduce carbon emissions; a second green revolution in eastern India should be ushered in with banking help; to help increase employment and productivity, banks should fund small businesses and entrepreneurs; the poorest of the poor students should be finced to help them pursue courses of their choice. Doubtless the RBI has a gargantuan challenge in its hands to fulfill this wish list, with India slated to overtake Chi as the most populous country. Despite the RBI Governor publicly airing his misgivings in September last about the Jan Dhan scheme, the RBI seems to have now fallen in line by setting an August 14 deadline this year for banks to include all villages across the country with population above 2,000. The Reserve Bank had already begun its programme of fincial inclusion in 2009-10, followed by a second phase in 2013. But now the process of bringing every household under banking cover will accelerate due to relentless pressure by the Modi government, which in turn has raised questions about banking prudence.

The main difference between RBI’s gradual approach and the NDA government’s breakneck pace of fincial inclusion is the KYC (know your customer) norm. The Jan Dhan scheme has considerably diluted KYC norms by permitting customers to produce any document like Aadhhar card, PAN card and driving license to open bank accounts. Non-insistence on uniform identity proof is said to have resulted in large chunk of duplicate accounts of the more than 10 crore new accounts opened. This is because many earlier account holders are said to have opened new accounts to avail of Jan Dhan facilities like Rs 5,000 overdraft facility, free insurance and a free debit card. It is primarily such freebies which had made RBI Governor Raghuram Rajan doubtful about the banking sector’s ability to bear the load. Apart from the cost of servicing crores of non-operative zero-balance accounts, there are various possibilities of misuse like individuals operating through another person’s bank account and even hawala operators using several bank accounts to send money overseas illegally. The Modi government has spoken about seeding bank accounts with Aadhaar cards to prevent duplication and maintain correct databases that can be electronically monitored. But the Supreme Court has already cautioned the Government not to make the Aadhaar card mandatory in providing services to people. However, responding to the Prime Minister’s call for innovative fincing to the poor and margilized, the RBI Governor has spoken about tailoring banking services to the specific needs and limitations of low-income groups. Some of Rajan’s proposals like micro-lending through small fince banks and payments banks, mandating greater roles for postal, rural and cooperative banks, and developing new sources of risk capital for fincing infrastructure —  all indicate the new horizons opening up before Indian banking.