Performance Analysis of PMJDY & Financial Inclusion in India
Highlights:
- India now has 58.3 crore Savings & Bank Deposit Accounts.
- The number of active Financial Inclusion Accounts (FI A/Cs) has shot to 45.1 crores by March 2018 – 4 times jump
- Heightened Economic Activity – 11.52 times jump; Digital Transactions up 7.7 times
- Overall there were Rs 31,230 crore in deposits in FI A/Cs in March 2014; Rs 1,06,640 crore by March 2018 – 3.14 times jump. 70 pr cent of these are in PMJDY A/Cs • 24 crore FI A/Cs have a RuPay Debit Card – 21 times jump; 55% used at least once
- Based on SKOCH Sample Data of 6 banks, total RuPay cards issued in Rural areas witnessed a massive jump of 23.71 times from 0.34 crore in March 2014 to 8.12 crore in Dec ‘17
- The total RuPay cards issued in Urban areas increased by 32.98 times from 0.07 crore to 2.26 crore within the same period
- 18.4% of FI Accounts have Accident Insurance; 5.4% have Life
- Growth in Bank Branches in Rural Areas – up from 33,370 in March 2010 to 50,880 in March 2017
- 90% of 1.26 lakh Banking Correspondents (BCs) are active
Report:
From a poorly banked to an almost universally banked country at the household level is the most laudable achievement of the Financial Inclusion (FI) initiatives of the government since 2014. Financial inclusion gets a big push under Pradhan Mantri Jan Dhan Yojana (PMJDY), wherein 34 crore Financial Inclusion accounts have been added in the largest concerted effort ever to push the total number of FI accounts to 58.3 crores that serve the purpose of FI, says a report by SKOCH Group entitled, “PMJDY Drives Financial Inclusion Home: A Performance Analysis of PMJDY.” The report, authored by Sameer Kochhar, Chairman, SKOCH Group, and Rohan Kochhar, Director of Public Policy, SKOCH Group says that this is the biggest ever jump – 2.4 times or 140% – in the number of financial inclusion accounts opened. Based on the SKOCH Sample Data, the six sampled banks had a total of 18.11 crore Financial Inclusion accounts in December 2017, up from 4.16 crore Financial Inclusion Accounts in March 2014—an increase of 4.35 times (Figure 1).
Overall there were 24.3 crores in Financial Inclusion Accounts in March 2014, which touched 58.3 crores by the end of March 2018. The figure had already touched 56 crores as of December 2017, out of which 25.3 crore accounts were Basic Accounts. An increase in the number of active FI accounts shows strong momentum in the usage of banking services.
Rural Financial Inclusion
Of the 99.95% coverage of households under PMJDY, Rural FI accounts increased to 15 crores in December 2017, up from 3.68 crores in March 2014 – a jump of 4.15 times or a whopping 305%. Urban FI accounts during the same period leaped to 3.26 crore from 0.48 crore – an unprecedented jump of 6.6 times or 566%. This makes India an almost universally banked country at the household level (Figure 2).
Not only have the number of accounts soared, but the number of transactions in FI accounts has also exponentially gone up and these have registered a jump of 11.52 times in the quantum of transactions. It is particularly noteworthy that Digital Transactions have spiraled 7.7 times – up from 4.17 crore in March 2014 to 32.12 crore in December 2017. The overall transactions have been estimated to go up by six times, indicating heightened activity in FI accounts, the report says. Based on SKOCH Sample Data, the six banks have a total of 18.11 crore Financial Inclusion Accounts, 85% of which, i.e., 15.42 crore accounts, are active. Overall there were 11.3 crore active Financial Inclusion Accounts in March 2014, which is expected to touch 45.1 crores by March 2018 (Figure 3).
This figure has already touched 39.2 crores as of December 2017—an increase of 4 times
Rural India is Saving
Rural India is saving more, for which the credit goes to the Financial Inclusion initiatives of the Government of India. Overall there were Rs 31,230 crore deposits across 24.3 crore Financial Inclusion Accounts in March 2014. Four years hence, this number has jumped by 3.14 times to Rs 106,640 crore in March 2018. Nearly 70% of this, or Rs 74,650 crore, is in 33 crore PMJDY accounts (Figure 4).
This shows an exponential improvement in saving habits and capital formation among people who were, until recently, Unbanked. As per SKOCH sample data, the average balance in Rural Areas went up from Rs 514.40 in March 2014 to Rs 1695.24 in December 2017. Similarly, for Urban Areas, it is estimated at Rs 3,251, up from Rs 537.5 during the same period. The report says there is a similar 3.41 times jump in the income of banks on account of PMJDY accounts. At a 3% spread, it is expected to be Rs 3,199.3 crore in March 2018, up from an average of Rs 936.9 crore in March 2014. The upward trend is suggestive of the fact that the money deposited in PMJDY accounts is still in the system and that the criticism that PMJDY accounts were misused during demonetisation is unfounded since the money deposited by PMJDY account holders is still in the system. In fact, if the accounts were being misused, the money would have exited such accounts a long time ago.
24 crore RuPay Cards Of 34 crore Financial Inclusion accounts added since 2014,
24 crore now have a RuPay Card. Out of these, 13.2 crores, or 55%, have been used at least once. The report suggests that the necessary infrastructure for a transition to digital payments is in place. The report indicates that the Rural Financial Inclusion Accounts, as per SKOCH sample data, which stand at 14.92 crores in December 2017, had a far larger share of RuPay Cards than Urban Financial Inclusion Accounts at 3.20 crore in December 2017. This split stands at 78.22% in Rural Areas and 21.78% in Urban as of December 2017 (Figure 5).
Transactions
Overall digital transactions have risen from 4.17 crore in March 2014 to 32.12 crore in December 2017, reflecting a jump of 7.7 times, the report highlights. This is also indicative of heightened economic activity in Financial Inclusion accounts, according to Sameer Kochhar.
Similarly, cash transactions have also shown an upward trend, up from 14.82 crores in March 2014 to 186.75 crore in December 2017, pointing towards a 12.6 times growth in
Cash Transactions (Figure 6).
Social Security Net Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY) have been successful in providing the social security safety net to those who were not only ‘unbanked’ but also ‘insurance excluded’ prior to 2014. According to the Report, Financial Inclusion Accounts are clearly outperformers in insurance. While LIC is leading in PMJJBY, New India Assurance leads in PMSBY. The report says, out of 34 crore Financial Inclusion Accounts, as per SKOCH sample data, 18.4% of Financial Inclusion Accounts had linkage with accident insurance and 5.4% of these accounts had life insurance linkage. This is when the overall insurance penetration in India is merely 3.7%. Out of SKOCH sample study data, 18.11 crore Financial Inclusion Accounts, 3.34 crore had accident insurance and 0.98 crores had life insurance cover. The insurance includes cover bundled with RuPay Card as well as accounts opting for PMSBY and PMJJBY. Based on the SKOCH sample data, out of these accounts, only about 0.1 crores were found to be linked with Pension schemes – Atal Pension Yojana (APY) and Swavlamban Yojana, the report said. Micro Insurance Success Out of 18.11 crore FI accounts studied, 3.34 crore had Accident Insurance Incidence and 0.98 crores had Life Insurance incidence. The insurance includes cover bundled with RuPay Card as well as accounts opting for PMSBY and PMJJBY. Based on SKOCH Sapmle Data of 6 banks, 18.4% of FI accounts had Accident Insurance Linkage and 5.4% of FI accounts had Life Insurance linkage. When compared to the overall insurance penetration in India of merely 3.7% Financial Inclusion accounts are clearly outperformers in insurance (Figure 7).
Channel Expansion The number of rural bank branches have seen a steady increase from 33,370 in March 2010 to 50,880 in March 2017. This is indicative of greater rural penetration by banks. The number of Banking Correspondents (BCs) has dwindled from 2.48 lakh in March 2014 to 1.26 lakh in December 2017. However, the number of active BCs has increased significantly from March 2014 when almost 80% BCs were inactive to December 2017 when now more than 90 percent of the 1.26 lakh BCs are active (Figure 8).
Based on SKOCH Sample Data of 6 banks, of the 64,000 BCs studied, it came to light that a total of Rs 429.99 crore credit and Rs 23.29 crore recovery business was done through them from March 2013 till December 2017. This is a significant increase from only Rs 1.64 crore credit and Rs 2.25 crore recovery business conducted through BCs as reported for March 2015. On the basis of the 64,000 BCs studied, the total credit income comes out to be Rs 8.03 Crore, total Recovery income Rs 1.32 crore, and total income from other sources comes out to be Rs 542.1 crore. The average monthly income (Fixed & Variable) of BC, as estimated by Microsave, is Rs 5,775.
Recommendations
• PMJDY accounts should be mandated for Direct Benefit Transfer (DBT).
• Cards issued to PMJDY should have a built-in credit limit of Rs 500 adjusted against DBT.
• Credit should be made available at @14% or higher.
• The credit limit should go up gradually.
• A small savings product is urgently required.
• Exchange Traded Funds, e.g., Gold and Silver, should be offered.
• Having largely met the banking objectives, new focus areas should be as follows:
• Increase transactions, create a credit history, and improve BC income.
• Financial Literacy needs urgent attention.
• Link to markets and other products that offer long-term financial security, including post-retirement.
• Pension scheme to be kick-started.
• The horizon should be expanded to include all financial services.
Methodology
• SKOCH has been studying Financial Inclusion since before the inception of government schemes in this sector in 2004. It has periodically published research on the performance of these schemes and made recommendations for improvements. Several of these recommendations have been implemented. The SKOCH knowledge repository has been extensively used for the current analysis.
• For the present study, primary data on Financial Inclusion Accounts was sought from six public
sector banks, namely, SBI, Allahabad Bank, Vijaya Bank, United Bank of India, Punjab and Sind
Bank and Bank of India.
• These banks account for 54 % of the PMJDY Accounts. Data from these banks have been extrapolated and used to estimate overall scheme numbers wherever relevant. Most data is
available up to December 2017 or early February 2018. In some places, this has been extrapolated to March 2018. All such primary data is referred to as SKOCH Sample Data in this report.
• Several rounds of interviews and conferences were conducted across stakeholders.
• Extensive interviews were conducted even outside these six banks, which provided the data.
• Additionally, data was accessed from the RBI website (https://www.rbi.org.in) and the PMJDY website (https://pmjdy.gov.in).
