Pradhan Mantri Jan Dhan Yojna: An Analysis


Pradhan Mantri Jan Dhan Yojna (PMJDY), a flagship GOI initiative for financial inclusion is set to complete 4 years

What is Financial Inclusion?

Financial inclusion means the delivery of financial services, including banking services and credit, at an affordable cost to the vast sections of disadvantaged and low-income groups.


Fast Facts:

According to World Bank’s Findex Report, 2018:

  • 80% adult Indians have bank accounts compared to 53% in 2014 and 35% in 2011
  • 36% of account holders use their accounts to make or receive digital payments

According to CRISIL Inclusix, 2017- Financial inclusion in India

  • Financial Inclusion improved significantly: Index scores 58.0 in fiscal 2016 as compared to 50.1 in fiscal 2013.
  • Highest score: Kerala- 90.9
  • 600 million deposit accounts were opened between fiscals 2013 and 2016
  • 7 million Increase in new credit or loan (banks and microfinance) accounts between 2013 and 2016
  • Total Bank Branches: 1.35 Lakh

Note: Index based on 4 parameters: branch penetration, deposit penetration, credit penetration and insurance penetration.

Causes of Financial Exclusion

  1. Lack of demand for financial services due to:
  • Lack of awareness
  • Illiteracy, financial illiteracy
  • Poverty
  1. Supply Side Factors:
  • Distance from banks/financial institutions
  • Lack in ease in transaction: Cumbersome documentation and procedures
  • Unsuitable products

Need for Financial Inclusion:

  1. Important for inclusive growth and sustainable socio-economic development.
  2. Enables to reduce income inequality; bridge social divide
  3. Develops resource base of the financial system by developing a culture of savings among rural population
  4. By bringing low income groups within the perimeter of formal banking sector; financial inclusion protects their financial wealth and other resources during extreme situations
  5. By providing easy and affordable formal credit, it mitigates the risk of exploitation of the vulnerable sections by money lenders

Committees and Recommendations

Rangranjan Committee Report, 2008

  1. Task of financial inclusion should be introduced in a mission mode as a financial inclusion plan at the national level
  2. Along with improving delivery systems, there should be focus on demand side factors. This include improving human and physical resource endowments, enhancing productivity, mitigating risk and strengthening market linkages
  3. Constitution of two funds with NABARD – the Financial Inclusion Promotion & Development Fund and the Financial Inclusion Technology Fund
  4. Amendment to NABARD Act to enable it to provide micro finance services to the urban poor.

Nachiket Mor Committee Report, 2015

  1. Universal Electronic bank Account to all Indians above age 18
  2. Provide license to Differentiated Banks:
  • Payment banks; similar to the pre-paid instrument providers (PPI)-These banks to provide payment services and deposit products to its target customers (small business and low income households). However, these banks would not provide loans.
  • Wholesale banks: lenders that cater to large corporate which require long-term finance
  • Small banks: small sized universal banks; can provide credit
  • Custodian banks: specialised financial institutions mainly responsible for safeguarding a firm’s or individual’s financial assets, and are typically not engaged in conventional retail lending
  1. Abolish Statutory Liquidity Ratio (SLR) gradually and replace it with the Liquidity Coverage Ratio (LCR)
  2. Reduce Cash Reserve Ratio (CRR)
  3. Increase Priority Sector Lending (PSL) targets from 40% to 50%. However, there should be regionally differentiated targets

Advancing Financial Inclusion in India: Pradhan Mantri Jan Dhan Yojna (PMJDY)

  • Over the years, the government of India had taken several steps to include the financially excluded segments of the society into formal financial system. A major programme of GOI was Swabhimaan, launched in 2011
  • However, the banking penetration despite concerted efforts remained low. In this context, to ensure banking account in every household, National Mission on Financial Inclusion or Pradhan Mantri Jan Dhan Yojna was launched in 2014.

Key features of PMJDY:

  • Banking facilities access to all
  • Zero balance accounts with Rupay Debit cards
  • Improve/ Provide financial literacy
  • Opening of credit guarantee fund to cover potential defaults in overdrafts
  • Micro-insurance
  • Pension payments under the Swavalamban Yojna for workers in the unorganised sector
  • Accidental insurance cover of Rs. 1 lakh
  • Life insurance covers of Rs. 30,000 for first time accounts
  • Mobile banking
  • Branchless banking through Bank Mitra

Key Differences between earlier programme (Swabhimann) and PMJDY

Swabhimann PMJDY
1.       Limited geographical coverage and focus on villages with population greater than 2000covered. Only rural1.       Focus on households, coverage of the whole country- both rural and urban

·         Country divided into number of sub-service areas (SSA), each with 1,000-1,500 households

2.       No use of mobile banking2.       Use of mobile banking; mobile wallets
3.       Complicated KYC norms3.       E-KYC, KYC norms simplified
4.       Monitoring left to banks4.       State and District level committees for monitoring
5.       Providing credit facilities not encouraged5.       OD limit after satisfactory operations/credit history of 6 months; Credit Guarantee Fund to cover defaults; Rs.  5000 overdraft facility
6.       Primary focus on account opening only6.       Account opening integrated with DBT, credit, insurance and pension.
7.       Inter-operability of accounts absent7.       Inter-operability through RuPay Debit Card, AEPS etc
8.       Absence of grievance redressal mechanism8.       Grievance redressal in each state


Performance Appraisal of PMJDY


  1. As of February 2018, 31 crore deposit accounts opened under PMJDY
  2. As of April 2018, total deposits in Jan Dhan accounts more than Rs 80,000 crore
  3. India improved its ranking in World Bank’s Global Findex from the 7th position among the 10 largest emerging markets in 2014 to reach the 1st position along with China in 2017
  4. The overall usage of digital modes of payment rose from 10% in 2014 to 29% 2017
  5. Gender gap reduced significantly: from 20% points in 2014 to 6% point in 2017
  6. Reduced gaps in bank account ownership between rich and poor: from 14% in 2014 to 5% in 2017

Effect of Demonetization:

  • Demonetization led to increase in registered users of all financial institutions. Increase in number of accounts under PMJDY
  • Increase in deposits in Jan Dhan accounts
  • However, ability of poor people to repay loans reduced.

Critical Issues:

  1. Non-operative/ Dormant accounts:
  • According to the World Bank, in India, the share of inoperative bank accounts is 48% – the highest in the world
  • According to a English daily, there has been instances where bank officials deposited Re 1 in the accounts of PMJDY users deliberately to reduce the number of zero-balance bank accounts
  1. Duplicate Accounts
  • According to a survey by Microsave, 31% of Jan Dhan Accounts were duplicate accounts.
  • Duplicate implies that the Jan Dhan account holder had a second bank account in his name
  1. Low deposit amount:
  • Even for the accounts which have been operative; the amount of deposit is poor. Average deposit amount is Rs. 2,580
  1. Low benefit from overdraft facility
  • As of December 2017, only about 1% of account holders have been able to use the overdraft facility
  1. No increase in access to formal credit
  • Can be assessed by credit-deposit ratio, share of small borrowers in total credit.
  • Credit deposit ratio stagnated in rural areas since 2014 and declined from 58.2% in 2014 to 57.7% in 2016 in semi-urban areas
  • Share of small borrowers in total credit has been declining since 2014
  • Small agricultural credit has stagnated since 2014. Small personal loans (for home, vehicle, durable goods etc) declined in the same period

Note: Credit-Deposit ratio: Credit that can be availed per ₹100 of bank deposits by a particular population group.

  1. Continued presence of moneylenders:
  • Dependence on informal credit has not decreased. According to Household Survey on Indian’s Citizen Environment and Consumer Economy, 2016, two out of three people of the poorest section of the society take credit from informal sources.
  • Most of these people fail to repay loan in time and get into debt trap

Best Practice: China

  • China has been a pioneer in fintech revolution
  • Chinese financial inclusion policy prioritize broadening the availability of basic financial products through improvements in credit and payments infrastructure, expanding physical access points for rural consumers, and establishing new types of financial service providers
  • It has a coordinated approach to financial inclusion: Launched national Plan for Advancing the Development of Financial Inclusion (2016-2020) in 2015
  • Lessons to learn from China:
  1. Focus on financial infrastructure development
  2. Policy for reaching “last mile” consumers
  3. Online network-based business models: It has leveraged network effects, technology, economies of scale, big data, and cross-subsidization opportunities.

Way Forward:

  1. Implementing effective financial literacy programmes
  2. Upgrading technical and institutional infrastructure for e-payment systems
  3. Ease the fees, terms and conditions associated with transaction account services for marginalized sections of society.
  4. Developing low cost technology to address low income consumers
  5. Measures to be adopted for digitalization of the economy to facilitate the use of e-money
  6. Ensuring cyber security to eliminate the risk involved in use of IT
  7. It is important to understand that access to financial inclusion does not necessarily ensure inclusion. An important determinant of demand for financial services is income. There should be concerted efforts in poverty alleviation
  8. Process of financial inclusion to be sustainable. Increase in access to financial services should be accompanied with sound financial regulation and financial stability
  9. Focus should also be on effective implementation of other financial inclusion schemes such as MUDRA, Stand Up, Self Help Group bank Linkage Programme, PMJJY, PMSBY
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