Prime Minister’s financial inclusion plan – all about accounts not accountability

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By T. Bijoy Idicheriah, Cogencis

Sunita Samant, a maid in a Mumbai suburb, had a busy weekend with three banks courting her for opening savings bank accounts. She ended up opening three such accounts–two with state-owned banks and one with a large private sector bank–in addition to her existing account with another state-owned bank.Samant’s earlier account is in her maiden name, which makes her “unbanked” under her marital name. This makes her an easy target for banks rushing to meet their targets on financial inclusion envisioned under the Pradhan Mantri Jan Dhan Yojana. Her case is not an aberration. Her family with four adults now has 13 accounts, most of which were opened over the weekend.

Financial inclusion has become the buzzword for bank chiefs after Prime Minister Narendra Modi announced the Jan Dhan Yojana in his Independence Day speech aimed at opening one bank account in every household.

The bank account comes with a RuPay debit card, 30,000-rupee life cover, 100,000-rupee accident insurance cover, and an over draft facility of up to 5,000 rupees.

Banks opened 18.5 mln accounts on Aug 28, the day Modi launched the scheme nationally.

This has prompted the government to encourage banks to advance the deadline for meeting the 75-mln-new-account target to Jan 26 from the original Aug 14, 2015.

Banks have now been told to conduct camps on a weekly basis at all branches, and the campaign has already been hailed by the government as a success due to the large number of accounts opened.

As on Saturday, banks had opened 21.4 mln accounts. But, Samant’s case should give enough reason to take the targets achieved under the scheme with a pinch of salt.

Her case highlights the pitfalls of target-driven approach to banking rather than focussing on providing financial services and creating a lasting relationship.

The government has not just thrust banks into this scheme, but also forced insurance companies to offer coverage to account holders.

Needless to say, with targets in mind and the government breathing down the neck, there could have been compromises in opening of accounts and know-your-customer norms.

At a time when security of banking services is being threatened with rising asset quality issues and internal fraud, these accounts if not properly handled can end up being misused, especially in rural areas.

The new financial inclusion scheme has junked the old Aadhaar-linked scheme pushed by the previous United Progressive Alliance government, and once again focuses on account opening.

Banks cannot be faulted for getting a sense of deja vu, as opening accounts was also the focus of the previous government. Even then the intended plan was to ensure government benefits through direct transfer to beneficiary accounts.

Former Reserve Bank of India Governor D. Subbarao, under whom financial inclusion got its push, had famously moved away from financial inclusion to focus on ‘meaningful financial inclusion’ by the end of his stint in 2013.

Bank and RBI officials admit that most of the accounts opened under the previous regime’s financial inclusion plan ended up being inoperative, and are likely to remain that way if the same beneficiaries switch to the new plan in search of more benefits.

Insurance companies and banks will have to shoulder the increased burden of these accounts and provide services, even as they remain acutely aware that the actual use may remain negligible.

India, is a grossly under-banked country and definitely needs government support for increasing the reach of financial inclusion, but by choosing to focus on the headline-driven approach, the Modi government may have ignored the need for quality of inclusion.

The government needs to get banks to go to the rural areas, open branches and ensure presence to push financial inclusion, rather than just focus on opening of accounts.

RBI has been pushing for greater financial literacy along with financial inclusion, to ensure that the new customer learns more about the benefits of being part of the system. The government’s plan should have also pushed such efforts by banks.

While the actual targets achieved under Modi’s new scheme are commendable, there is need to shift from accounts to accountability to ensure financial inclusion in the real sense of the term. End

Edited by Michael Correya

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