JanDhan's success boosts bank accounts but financial inclusion challenges persist

A total of 531.3 million JanDhan bank accounts, a cumulative deposit balance of Rs 2.3 trillion with 67% in rural and semi-urban areas are impressive achievements for a decade old program. It had reportedly started out with a target of covering 7.5 crore uncovered households but ended up opening 12.5 crore accounts in less than six months from launch. Only a decade earlier, the 2011 census data showed that that nearly 41% the population did not avail banking services. Thanks to this push, by 2021, 78% of Indian adults had a bank account.

PMJDY was by no means the first initiative for financial inclusion but what set it apart was the mission mode and the use of technology, an element that was missing earlier. The nationalisation of banks and the setting up of SBI in the 1950s were in fact the earliest initiatives, which had approached the problem in terms of bringing banking majorly under State control. Later, the no-frills savings accounts and business correspondent schemes in 2005 sought to extend the physical reach of banking. But what changed the dynamics was technology, specifically the Digital Public Infrastructure (DPI) that had come into place. DPI covered three crucial elements viz digital identity, bank accounts and processing infrastructure. Around 1.4 billion Aadhaar numbers were issued (near universal coverage), a refurbished Basic Savings Bank Deposit (BSBD) with added benefits like built-in overdraft and accident insurance replaced the no-frills accounts while processing infrastructure came in the form of affordable mobile phones and low-cost internet. This fortuitous combination helped ramp up the number of mobile based internet users to nearly a billion now. Interestingly, all of this happened even before the true game changer arrived in the form of the UPI, a real-time payment system, which came much later in 2016.

Controversies Around JanDhan

The impressive growth also had its share of controversies. Even though they were pitched as accounts without minimum balance requirements, as many as 75% of the JanDhan accounts opened had zero balances which, many argued, reflected the real state of rural well-being where people could not afford to bring in even small sums of money. Not unsurprisingly, there hardly any transactions in the accounts given the low average balance (Rs. 3839 in 2023).  The built-in overdraft facility of Rs 5000, for instance, was barely utilised. RBI data show that in 2015 only 76 lakh accounts of the total 40 crore BSBD accounts availed the overdraft at an average Rs 2600 per account. In subsequent years these numbers dropped significantly to a modest Rs. 572 in 2023. The low average account balances and low credit availed were pointing to the fact that access to a bank account was a necessary but not sufficient condition for improving financial well-being.