Balance in Jan Dhan accounts drops by Rs 10,000 cr since demonetisation peak

Bank accounts opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY) witnessed a drop this year in deposits of nearly Rs 10,000 crore, down 13 percent from its peak balance in December during demonetisation.

On the other hand, the number of accounts increased by 3.2 crore (from 25.8 crore to 29.1 crore accounts) during the January-July period.

Just a day after the announcement of demonetisation of Rs 500 and Rs 1,000 notes, the number of accounts under PMJDY stood at 25.51 crore with a balance of Rs 43,636.60 crore as on November 2016.

In a month, this balance jumped by over 70 percent to peak at Rs 74,609.5 crore in 25.82 crore number of accounts by December 7.

However, in just over six months, this has gradually reduced by Rs 9,832.87 crore to Rs 64,776.62 crore, a drop of 13 percent as on July 19 this year since the demonetisation peak.

The spike was attributed to the higher usage of these accounts from several transfers were made — both by households as well as those stocking black money for conversion purposes.

On the other hand, there are allegations that some of them were used to launder black money. Investigations are on and the reason for the sharp increase is yet to be ascertained.

Madan Sabnavis, Chief Economist, CARE Ratings, said: "The fact remains that people are habituated to holding cash of certain quantum and currency is still dominating. The money that came into the system cannot be attributed to black money because it came into the system irrespective of whether it was accounted for or not as it became invalid and had to be deposited."

He also adds, given that the average balance is not going up is because people do not have enough money and that their cash habits are back. “There is also more competition that is increasing with small payment banks coming in and there is very less money. This will only increase if the standard of living of rural people increases or their income goes up.”

The average balance in the accounts also fell from Rs 2,889.6 in December to Rs 2,220.6 crore in July.

While the deposits in Jan Dhan accounts are already under the scanner, it remains to be seen how the scheme performs going forward.

In Sabnavis’ view, banks are doing a very good job of financial inclusion in terms of opening accounts…but the quantum of money coming in is not substantial. Where government transfers are forcibly done, the accounts are seeing an inflow of money but for the rest of the accounts, poor people do not have enough money to put into the system.

Launched on August 15, 2014 by Prime Minister Narendra Modi in his maiden Independence Day speech, PMJDY was announced as a people money scheme is India's National Mission for Financial Inclusion to ensure access to financial services, namely Banking Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner.

Although an extension of previous financial inclusion schemes, this was Modi’s hobbyhorse and hence got the most aggressive push through government-owned banks like never before.

Since the launch of PMJDY scheme, the number of accounts rose to 5.37 crore with balance in accounts at Rs 4,273 crore as on September 30, 2014. This surged to 29.48 crore accounts with balance of Rs 65,697 crore as on August 9, 2017.

"The fact that average balance is not coming up is because people have not enough money and that their cash habits are back. There is also more competition that is increasing with small payment banks coming in and there is very less money. This will only increase if the standard of living of rural people increases or their income levels go up," he added.

Primarily driven by the public sector banks with a share of around 80 percent, followed by regional rural banks with 16-18 percent while private sector banks have averaged around 3.2-3.5 percent, the leading states benefited are UP, Bihar, West Bengal, Maharashtra, Manipur, Rajasthan, Chhattisgarh, Assam and Odisha.

Jan Dhan has been successful to the point that it has helped open bank accounts but having said that there is an increased need for people to be actually banking with it, which is yet to be seen.