food for thought

It is a world record that needs to be celebrated because it has far–reaching significance for all Indian citizens. It is also a record that needs to be treated with caution for it may impact upon the country’s banking system. Recently the Guinness Book Of World Records recognised a feat which has never been achieved anywhere before. It is the opening of 1.8 crore new bank accounts within a single week, between 23rd to 29th August last year. It has come about as part of Prime Minister rendra Modi’s ambitious plan to include all Indians under the banking system. Under the ‘Jan Dhan’ scheme he had announced on Independence Day, 11.5 crore bank accounts have already been opened within five months up to 17th January this year. According to Fince Minister Arun Jaitley, India has become an almost fully banked country, paving the way to direct transfer of benefits through bank accounts for various welfare schemes to beneficiaries. Claiming it to be a foolproof system for plugging leakage of subsidies, Jaitley said that around Rs 51,029 crore will be transferred directly to bank accounts of 15.45 crore beneficiaries this year. Out of 35 such schemes,19 schemes have been rolled out including the PAHAL scheme under which LPG subsidies amounting to Rs. 1,757 crore have already been transferred. An estimated 4.3 crore targeted beneficiaries are slated to receive Rs 15,000 crore under MGNREGS. Pension, scholarship and other direct benefit schemes through bank accounts are also in the offing. The Prime Minister had said in his I–Day address that hitherto the poor have had no access to the banking system, and it was necessary to include them while keeping out middlemen who siphon off public money. This is a laudable aim which may well become a game changer for the Indian economy, but there is a need to be circumspect. The suspicion is that public sector banks have cut corners to open maximum number of bank accounts in minimum days to make the Prime Minister’s pet scheme a grand success. This note of caution was sounded last year by none other than the RBI Governor Raghuram Rajan, that bankers’ prudence may be sacrificed if state–run banks are pushed by the government to implement its populist agenda in a hurry. Every bank account opened under Jan Dhan scheme is supposed to come with a RuPay debit card, Rs 1 lakh accident insurance cover, Rs 30,000 life insurance cover and overdraft facility of Rs 2,000 which can be extended to Rs 5,000 based on credit history. As of November, 2014, the Central government pumped in Rs 5,400 crore into such bank accounts as part of subsidy for the scheme, and this amount will increase manifold as the coverage nears 100 per cent. But one of the biggest concerns is empty bank accounts, with no deposit in them. Of the 7.1 crore bank accounts opened by November last, 5.3 crore accounts had no balance. There are concerns that in many cases, those holding existing accounts may try to open new accounts to avail of the benefits offered under Jan Dhan scheme. Reportedly some banks are even overlooking ‘know your customer’ (KYC) norms by accepting any document for opening account. As for newly opened accounts, if there is no transaction and they lie inoperative, then the burden of maintaining such accounts may fall upon banks. With the IMF and the World Bank recently forecasting 5.6 per cent growth rate for the Indian economy this fiscal and 6.4 per cent next fiscal, there is renewed confidence in the series of economic reforms unleashed by the Modi government. In the rush of this new confidence and the desire to achieve more — prudence about fincial matters, particularly those related to banking, must not be forsaken. After all, public sector banks operate with public money and are the mainstay of the economy.