Will Jan Dhan Yojana be a gamechanger? Experts discuss

In an interview with CNBC-TV18’s Latha Venkatesh, CV Rajendran, Andhra Bank chairman, as former Bank of Maharashtra chairman, he previously went the distance to open accounts for the unbanked. M Balachandran, Chariman, National Payments Corporation (NPCI) – the organization which will run the RuPay card and who will pay for the insurance and Sanjay Jaju, IT secretary of Andhra state, who will ensure that most first time bank accounts get used to make government payments to citizens, discuss their views on the Jan Dhan Yojana.

Below is the verbatim transcript of the interview

Latha: Just explain the mechanics to us, where does the NPCI come in, what is the use of the RuPay card and how will you find the money to provide this insurance without any premium being paid by either the government or the bank?

Balachandran: It is much more than RuPay card. We would say that the entire Yojana, the fulcrum is going to be NPCIs various products and services. Like right at the beginning of opening an account, the KYC is going to be enabled by e-KYC service to be provided by NPCI which in turn is linked to people who have been provided with Aadhaar number. With that the banks will find it easy to open an account wherever Aadhaar number is already available to them. Then having opened an account the transactions are going to be enabled.

First of all, the difference between the earlier version of financial inclusion and the current one is that accounts are going to be active by adequate float funds in that - in the sense that the accounts are going to be having credits. If it is going to be government credit like various benefit schemes, the direct benefit transfer is going to be enabled by NPCI’s national automatic clearing house. Or if it is linked to the Aadhaar number, we are going to have Aadhaar enabled Payment Bridge.

Once the amount gets into that, thereafter it has to be made available to the individuals and that is going to be possible through RuPay debit card. It could be used at the ATMs both regular and micro ATMs as well as at the merchant sites for purchase of goods and services. Or somebody is agile enough it can be used for e-payments. Thereafter if money has to be sent from one account to another account, person to person or person to merchant that is going to be enabled by our instant money payment service (IMPS).

Latha: At the moment how many outlets do you have outside the cities, outside tier I to tier VI cities how many outlets do you have where RuPay is valid?

Balachandran: The RuPay is going to be issued by all banks which are participating. About 324 banks have already been enlisted for issuance of RuPay card that is besides the public sector banks, private banks, RRBs, cooperatives, urban banks and their subsidiaries. Already about 24 million cards have been issued. Now it is going to be part of the yojana and the numbers are going to proliferate. Then the ATMs, there are around 1,80,000 ATMs all across the country.

Latha: But how many are in villages, how many are in non-urban centres?

Balachandran: Many of them, I won’t say majority of them, but wherever the banks have established the ATMs this is going to be used. In addition to that to make it more accessible to the public the micro ATMs are going to be utilised and that is where the role of business correspondence will come. Even where there is no ATM, the mobile payment service is going to enable the entire transaction possible so that is how it has been planned for.

Latha: Just tell me whether the banking system is geared to open 7.5 crore accounts? We heard that in the first one crore accounts which were opened in a hurry before July 29, quite a few of them were people who already had accounts because simply the deadline had to be reached. Is the system geared to give 7.5 crore accounts in the first place?

Rajendran: Going by the performance during the last 26 to 28 where number of accounts banks have opened, I don’t find any major challenge in opening the 7.5 crore accounts before January 26. Most of our resources were deployed during this period in this job; we will continue to deploy more resources into this job.

Latha: The more meaningful problem is whether you will be able to get them to use the accounts? Do you have the business correspondent link in all the villages?

Rajendran: All our villages we have our business correspondent. There are only 160 villages where I am not able to put in for example 2200 villages we have business correspondent up and functioning. Only in 160 villages there are connectivity related issues where I am not able to provide the business correspondent, we are addressing this issue. Once the connectivity is established the businesses correspondent will become functional in these villages also.

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Q: For the past one year how many first time accounts you opened in Andhra Bank and how many transactions happened in those first time or basic accounts?

Balachandran: I have about 3 crore 45 lakh accounts with me. Out of which about 75 lakh accounts are inoperative today, most of the them are opened in financial inclusion in the earlier years because there is no incentive for them to operate these accounts. The government has promised at that point of time that direct benefit transfer (DBT), direct benefit transfer for LPG (DBTL) as well as government benefits will be routed through these accounts. There is a hope on which we have also opened these accounts.

To take the case of Andhra Bank, about 25 lakh beneficiaries are there in Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) where the payment should have been routed through these accounts. We have opened the accounts, but united Andhra Pradesh government at that point of time decided to route all these payments through post offices at that point of time. Though these 25 lakh accounts which were opened expecting MNREGA have remained dormant today, but in the new Jan Dhan, unless the account is operated every 45 days at least, he losses all the benefits in the insurance. Thus when claim comes, in the proceeding 45 days there must be at least one transaction in the RuPay card – that is the precondition. So it makes him compulsory to deals with the bank which we are educating the customers today.

Q: There is a good chance that if the government doesn’t oblige, every 45 days you will find accounts just going dormant and the account holder completely losing interest, right. You have to start from scratch again if you have to involve him?

Balachandran: Not scratch again.

Q: The ball is now directly in your court – the banker claims that the United Andhra government did not route all its payments through the banks but through post office. Are things looking like likely to change? How are you looking as a customer or as a potential user at the Jan Dhan accounts?

Jaju: If you are talking about Andhra Pradesh then you would know that in Andra Pradesh we have been doing National Rural Employment Guarantee Act (NREGA) transactions or our pension transactions for the last three-four years through bank accounts. We also had a system where we use to give smartcard and that was being use through a biometric device and subsequently Aadhar came in and we got ourselves completely saturated with Aadhar numbers. Then we moved over to Aadhar payment bridge and that is where the post offices came in. The post offices were part of the Aadhar payment system and we have been effectively making use of those accounts.

Coming to the scheme; it’s a completely welcome scheme, if you are able to get every individual or every family in this country included financially, a huge repercussion in terms of their poverty standards and multiplier effects in terms of better targeting of the benefits that we give. The only question that we need to address and in its implementation phases some of the points that you have already addressed, some of the points that you already spoke were to ensure that these are all new accounts, these are not existing beneficiaries or existing individuals who have an account which is lying dormant for couple of years and in this drive he opens a new account. So, what would be important here is to make use of technology and that’s where my role comes in.

We have to ensure that not just the new accounts are opened with Aadhar numbers, but the existing accounts that the banks have be it in commercial banks or in the rural banks or in the post offices, all these accounts are seeded with Aadhar numbers. Once we do that then only we will be able to come to a firm conclusion – these are all unique accounts and these accounts are not multiple accounts for the same beneficiary or the same individual and in that process we do not leave out the ones who are suppose to be included in the first phase.

Q: The charge is and you accept it that you are at the moment giving all your money through post office. Has the state governments bought into the Aadhar based bank accounts and making payments through these bank accounts? Is there bind from the state governments at least the one you are handling and will you now ensure this migration from post office to bank accounts?

A: We migrated from bank accounts to post office accounts last year after the Aadhar system came in. Earlier we had the business correspondents of various banks, Andhra Bank included who are running the entire payment system for NREGA and pensions. When the Aadhar came in we started to make use of the Aadhar payments bridge and we have moved over to post offices, but once this proliferation takes place and bank accounts get opened, the transition can always take place.

For a state like Andhra Pradesh, where we already had bank accounts, the relevance of Jan Dhan Yojana would come to those areas where there was not great financial inclusion. Andhra was always in top five-six states in the country, if you exclude the Union Territories possibly in the first three states in the country where you had large number of bank accounts. So, those states where you didn’t have too much of a financial inclusion, the scheme would work wonders for those states.

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Q: Who pays this insurance money Rs 1,00,000-1,30,000 that every account holder will be entitled to?

Balachandran: NPCI has plan to cover each RuPay account holder with an insurance that is against accidental death or permanent disability and the compensation will be Rs 100,000. The premium NPCI will be bearing that is how we have decided and it is going to be there for first year and thereafter we will review and extend it. We have entered into an agreement with one of the private insurance companies. So this is what the coverage we have planned for as far as RuPay debit card holders are concerned. This is going to be provided to all the card holders those who are going to be enrolled now and who already have been issued debit cards in the past.

Q: How will you find the money to pay this premium?

Balachandran: Premium will be out of the overall business. We have projected ourselves as to what is going to be the earnings out of operation, because this is a scheme. Cards are going to be issued by the banks and they will charge something upfront or during the course of the year. But as far as NPCI is concerned, we will have a commission earned when the cards are being used. We have got a fee structure and it is very transparent and that is used in all the banks hoping that, that is why we have said that this card has to be used at least once in 45 days.

Q: Are you expecting to make a lot of money with these transactions at all because Rajendran just said that the last few accounts he opened about 75 lakh accounts about 30 lakh he said were not used at all?

Balachandran: There is going to be a big difference between what it was in past and what it is going to be now. Now there is going to be adequate float in these accounts. The customers will have motivation to use these accounts because it is not only going to be used for cash transaction it will be used for goods and services as well. Like that, it is a question of business we have taken into account all these aspects.

Q: We are living in that hope, you yourself admitted that, in that 1,20,000 accounts where it can used most of those ATMs, a majority of them are not in at the village level just yet. You are hoping micro ATMs will start, you are hoping end user terminals will start, Mr Rajendran is hoping that Sanjay Jaju will shift all the accounts from the post office to the banks, we are living in hope, aren't we?

Balachandran: Jan Dhan Yojana is not going to be only for villages, it is going for the urban inclusion as well. So that way we cannot totally overlook the urban inclusion because finance inclusion is as much a serious issue.

Q: Diwakar Gupta the former MD of State Bank of India told me that the cost of opening and maintaining is around Rs 100 a year per account, is that a fair estimate a Rs 100 to open? Also tell me what is the money you will make or you expect to make?

Rajendran: The Institute for Development & Research in Banking Technology (IDRBT) has made a calculation and the cost is Rs 100 maintenance cost per account per year. Apart from this, there could be opening expenses because open the account and maintaining the system and issuing a RuPay card- all these things also costs the bank quite a bit of money, maybe another Rs 100 you can say to open this account.

So only hope as you are repeatedly telling is that these accounts will become operational, that is where the financial literacy program comes in. Jan Dhan Yojana has financial literacy also as a part of the Jan Dhan program wherein we are suppose to educate the customers about the benefit of savings.

Q: Is there any pressure that you have to offer overdraft? Are you a little worried that there is an NPL cost possible?

Rajendran: As of now it is very clear that there must be a six months track record of satisfactory operations in the account before you extend the overdraft facility. It is not that at one stretch you have to give Rs 5,000 overdraft on the day of opening the account. After six months of satisfactory operations, I may start with Rs 1,000 of overdraft and let him get used to what is the overdraft concept, it is only for emergency, whenever he draws some money, he has to pay the interest, he must be familiar with the system. If he is using the account properly, I may increase it to Rs 2,000-3000 and then Rs 5,000. Gradually I will bring him to Rs 5,000 by the time he will be well aware of the benefits of the scheme.

Latha: Do you think this scheme has the elements to succeed or could this also fall by the wayside with different departments walking in different directions, so many payments coming from post offices, so many payments going directly probably without even digital form. By January 26 do you think that we are in for a major facelift or even in the next 12 months?

Jaju: We need to really look at making use of technology. Aadhaar itself is a technology enabled platform, we need to aggressively make use of that. The important thing would be to develop that kind of trust between the bank and the beneficiary once you have identified that this is a unique family with a unique account and then we need to get rid of this multiplicities of branches, multiplicities of banks, multiplicity of banking instruments like we have RuPay card on one side, we have the Aadhaar enabled payment system on the other side and you have the business correspondents. Then you have multiple schemes within the government, if everybody starts putting in this money in their own respective bank accounts then you will have multiple accounts and in the process many of them will start become dormant.

So if you make use of technology which is very important and I initially mentioned it is important for the banks to also look at their existing accounts. Their existing accounts needs to be seeded with Aadhaar numbers. Once you do that then banks across the spectrum would be in a position to find out for a particular Aadhaar number what are the kind of bank accounts you have in the system. Then only you will be able to identify which is that account which is going to be the unique account for that beneficiary which you are going to make use of or the citizen in case he is doing rest of the transactions. The success of the scheme would basically be in the way it gets implemented and the use of technology.