Monday, September 22, 2014

'Jan Dhan' Scheme: National Payment Corp Scrambles to Issue RuPay Cards

'Jan Dhan' Scheme: National Payment Corp Scrambles to Issue RuPay CardsAlthough close to 4 crore bank accounts have been opened under the Jan Dhan Yojana so far, there is a huge backlog in the issuance of the Rupay cards by the National Payment Corporation of India (NPCI), the sole issuer of ATM cards for these new accounts.

Over the weekend, Financial Services Secretary G S Sandhu had said that banks had opened 4 crore accounts so far and mobilised about Rs. 3,700 crore as deposits in these accounts.

"Although the number of accounts opened are very high, about 20 lakh (RuPay) cards have been issued so far," National Payment Corporation of India (NPCI) managing director and chief executive A P Hota told PTI.

There is a lag in production of cards which usually requires three weeks to get cleared, according to Mr Hota.

"Personalisation (of cards) takes time because the name has to be embossed on the card. This is such a big order coming all of a sudden. Nobody expected that in one go so many accounts will be opened," he said.

However, he said the backlogs are likely to be cleared in next three weeks.

The scheme was launched by Prime Minister Narendra Modi on August 28 with an aim to boost financial inclusion.

Under the Jan Dhan scheme, account holders will get an overdraft facility of Rs. 5,000. They would also be provided with RuPay debit cards and Rs. 1 lakh accident insurance cover.
The government has envisaged to provide bank accounts to 7.5 crore people by January 26.

Nabard to highlight co-op role in RuPay implementation

The initiative of South Canara District Central Cooperative (SCDCC) Bank Ltd to make primary agricultural cooperative societies (PACS) as part of the payment system under the RuPay Kisan credit card will be taken as a model by Nabard.

GR Chintala, Chief General Manager of Nabard, Bangalore, told Business Line here on Saturday that the Nabard will issue a circular in this regard in another one-and-half months. 

The initiatives of Raigad and Rampur district central cooperative banks in Maharashtra and Uttar Pradesh, respectively, will also be showcased as models. Highlighting the SCDCC Bank model, he said both the tiers of cooperative banking have retained their identity while implementing RuPay cards. 

Here PACS, under SCDCC Bank’s jurisdiction, directly give loans to farmers. For the implementation of RuPay card, these societies open accounts in the books of SCDCC Bank.
Though the accounts are maintained at SCDCC Bank, the funds are routed in such a way that the farmer need not approach the SCDCC Bank branch. He said that the farmer will continue to transact at the micro ATMs at PACS level. 

In Raigad, farmers are the members of PACS but they have their loan accounts at the branches of DCCB (district central cooperative bank). All the accounts are transacted through the DCCB in Raigad. 

The Raigad model will be suited for those districts where the loans to farmers are extended directly through DCCB branches. 

Those districts that follow the practice of extending loans to farmers through PACS can study the SCDCC Bank model. 

He said that 167 PACS come under SCDCC Bank. It has jurisdiction over the revenue districts of Dakshina Kannada and Udupi. The boards of 163 PACS have given their nod for being a part of the implementation of RuPay Kisan credit cards to farmers.

No second account needed for Jan Dhan benefits: Govt

Mad rush: As on date, 4.18 crore accounts have been opened under the
Jan Dhan scheme. - RAMESH SHARMA

The Finance Ministry on Monday said that micro-credit (overdraft) limit of ₹5,000, proposed under the Pradhan Mantri Jan Dhan Yojana (PMJDY), can also be extended to existing savings bank accounts.

This facility will be available to all existing savings bank accounts on application and depending on the satisfactory conduct of the account, the Finance Ministry said in a statement here.
It has also issued instructions to the effect that people who already hold bank accounts need not open a Jan Dhan account just to get insurance benefits under the PMJDY.

The insurance benefits are available through RuPay card and existing bank account holders keen to avail themselves of the insurance benefits (promised under Jan Dhan accounts) can submit an application to the bank branch concerned to get a RuPay debit card.

Once a RuPay debit card is available to an account holder, the insurance benefits of accident cover of ₹1 lakh and life cover of ₹30,000 will be provided to them too.

As on date, 4.18 crore accounts have been opened under the PMJDY.

The Finance Ministry has also said that people who do not have officially valid documents or Aadhaar numbers can still get bank accounts opened by submitting two copies of signed photographs at the bank branch.

However, these accounts will be called “small accounts” and would be normally valid for 12 months. Such accounts shall be continued subject to showing of proof that he/she has applied for any of the officially valid documents within 12 months of opening of the small account.

One can open Jan Dhan A/c by just submitting 2 photos: Finance Minister

Finance Ministry today said people who do not have officially valid documents or Aadhaar numbers can open Jan Dhan bank accounts by submitting two copies of signed photographs at a bank branch.

"RBI has issued guidelines dated August 26, 2014, where people who do not have officially valid documents or Aadhaar numbers can still get bank accounts opened by submitting two copies of signed photographs at the bank branch," an official statement said.

However, it said these accounts will be called small accounts and shall normally be valid for 12 months and shall be continued subject to showing of proof that he/she has applied for any of the officially valid document within 12 months of opening of such 'Small Account'.

These accounts have certain limitations such as balance at any point of time should not exceed Rs 50,000, total credit in one year should not exceed Rs 1 lakh, and total withdrawal should not exceed Rs 10,000 in a month, it said.

It also said the existing account holder need not open another bank account to avail of benefits under Pradhan Mantri Jan Dhan Yojana (PMJDY).

As on date 4.18 crore accounts have been opened under PMJDY.
"In fact insurance benefits are available through the RuPay Card. The existing account holders can submit an application to the concerned branch to enable them to get a RuPay Debit Card in order to avail of the benefits of insurance under PMJDY," it said.

Micro credit limit of Rs 5,000 can also be extended in existing bank accounts on application depending on the satisfactory conduct of the account, it said.
The statement said that there had been complaints from some places about the availability of the account opening forms due to huge rush and certain people taking advantage of such situation.

In view of this, an advertisement has been issued in all major newspapers where the account opening form has been published, it said.

Anybody desirous of opening an account can come and take this application form to the nearest bank branch/bank mitr for opening the account, it said.

This one page account opening form is also available on the website of the Department, it added.

Govt yet to decide on who will foot the bill for Jan Dhan Yojana life cover

The Government is yet to firm up the modalities for life insurance cover of ₹30,000 announced by Prime Minister Narendra Modi on August 28 – the launch date of the Pradhan Mantri Jan Dhan Yojana (PMJDY). The Department of Financial Services (DFS) has forwarded a couple of proposals to Finance Minister Arun Jaitley who, as head of the PMJDY mission, is expected to take the final call, official sources said. The proposals under consideration include dipping into the social security fund managed by Life Insurance Corporation and setting up a joint fund by the LIC and the Government.

The basic question that remains unanswered is who will foot the insurance premium bill for the life cover to be provided to 7.5 crore unbanked families in the country.

Indications are that it will fall entirely on LIC, which had initially expressed reservations on bearing this burden. 

As of September 10, as many as three crore PMJDY accounts have been opened across the country — 1.9 crore in rural areas and 1.1 crore in urban areas.

However, the main area of concern is that RuPay cards have been issued to only 33 lakh account-holders, which is about 10 per cent of the accounts opened under PMJDY. 

As the RuPay card is the basis of all benefits attached to the PMJDY, the Finance Ministry has asked banks to sort out the issues that come in the way of speedier implementation of the programme.
These include personalisation of RuPay cards, devising proper distribution of RuPay cards and ensuring that industry be informed about projections for RuPay cards.

Cutting Down Interest Rates - State Bank of India

Banking major State Bank of India cut interest rates on fixed deposits of some timelines. Deposits between one and three years will now earn a rate of 8.75 per cent as against the earlier 9 per cent. But for short-term deposits, the bank has gone the opposite way. For deposits between 180 and 210 days, interest rates are up to 7.25 per cent from the earlier 7 per cent. 

IndusInd Bank has also cut rates, but this cut is on its savings bank accounts. The bank, which was among those which offered higher interest rates on the savings account, brought down interest rate to 4.5 per cent from 5.5 per cent for daily balances of less than ₹1 lakh. The reduction in rate is effective from September 1. The rate remains the same at 6 per cent for daily balances exceeding ₹1 lakh. 

Universally applicable
The benefits under the Pradhan Mantri Jan Dhan Yojna are not restricted to new bank accounts. Now, the Government has clarified that existing account holders can get these benefits as well, if they so desire. 

The benefits that can be got are the RuPay debit card with an accident insurance cover of ₹1 lakh and the issue of an overdraft of ₹5,000 after satisfactory operations for a period of time. To get these benefits, all that needs to be done is to apply to the concerned bank branch. 

Fund change
Investors in PineBridge mutual funds, take note. Kotak Mahindra Asset Management will acquire the domestic schemes of PineBridge Mutual Funds, subject to regulatory approvals. 

Of the seven schemes from the PineBridge stable, among the larger ones is PineBridge India Equity Standard fund, a multi-cap equity fund. But across the one-, three-, and five-year periods, its returns are below the category’s average. The fund, however, did edge past its benchmark BSE 100 in all periods. 

PineBridge India Short Term fund, its biggest debt fund, has similarly paled in performance compared to category peers across time frames. 

Absorbing these funds into the Kotak Mahindra stable may inject some improvement in performance. Though not top-quartile performers, quite a few funds from the Kotak house are at least mid-quartile performers. Funds such as Kotak Select Focus have recently picked up in performance as well.
In total, PineBridge has an asset size of about ₹635 crore. The Kotak AMC is bigger with assets under management of about ₹35,885 crore.

Financial Inclusion in India: Moving Beyond Bank Accounts

On August 15, India’s Independence Day, Prime Minister Narendra Modi announced a national mission of financial inclusion. Called the Pradhan Mantri’s Jan-Dhan Yojana — the Prime Minister’s People’s Wealth Program — it envisions bank accounts for all Indians. In its first phase, ending August 14, 2015, the target is 75 million accounts. “I wish to connect the poorest citizens of the country with the facility of bank accounts,” said Modi. “There are millions of families who have mobile phones, but no bank accounts. We have to change this. The change will commence from this point.”

Earlier prime ministers had made similar grandiose announcements, with few results. Indira Gandhi started a campaign against poverty, but it never gained traction. Manmohan Singh started a campaign against unemployment, but that failed to take hold as well. The Modi government is still in its honeymoon period; people are willing to accept Jan-Dhan as a plan but not a reachable destination.
On August 28, Modi formally launched the program. Banks across the country had been working overtime to make the necessary arrangements. On the first day, more than 15 million accounts were added. “It is the end of financial untouchability,” Modi noted. “It is the beginning of freedom from poverty.”

It’s not just the accounts that enticed people to the camps set up by the public sector banks. Every account holder will get a RuPay debit card, launched by the Reserve Bank of India (RBI)-promoted National Payments Corporation of India (NPCI); accident insurance cover of Rs.100,000 (approximately $1,650); life insurance coverage of Rs. 30,000 for those opening accounts before January 26 (celebrated as Republic Day in India), and an overdraft facility of Rs. 5,000.
“Never before in economic history have 15 million bank accounts been opened in a single day,” said Modi. “Never before have insurance companies issued 15 million accident policies in a single day. Never before has the government of India organized a program of such scale — over 77,000 locations — with the participation of so many chief ministers, union ministers, and government and bank officials.”

ICICI, India’s largest private sector bank, opened only 100,000 accounts that day. “ICICI Bank has been working on a comprehensive financial inclusion plan over the past four years,” MD and CEO Chanda Kochhar told Knowledge@Wharton. “Through our network, we cover approximately 15,600 villages and have brought more than 18.5 million unbanked people into the banking fold. We aim to open 2.5 million accounts under the yojana, taking the total number of accounts under our financial inclusion program to more than 20 million.” As of September 8, major private sector banks taken together opened just 580,000 accounts.

Reasons for Concern
It remains to be seen whether the program will lead to big changes. “This is a small step and the take-up is encouraging,” says Wharton finance professor Krishna Ramaswamy. “It might lead to small and improved savings in an accountable and hopefully trustworthy way.”
The skepticism comes in part due to questions about the veracity of the numbers themselves. RBI governor Raghuram Rajan has publicly warned the banks not to run after records. “We have to make sure the Jan-Dhan Yojana does not go off track,” he said at a conference on September 15. “The target is universality, not just speed and numbers.”

According to H.K. Pradhan, professor of finance and economics at XLRI Jamshedpur, there are concerns of duplicate accounts from people who may have opened them “without really understanding what they were doing.” He adds that the issue will be sorted out when biometric identification is introduced. But there could be operational complications: Anybody in India can open multiple accounts, so how can there be a different rule for the currently unbanked?

The second — and more important — issue is that India’s problem of financial inclusion is gargantuan. According to World Bank data, only 35% of Indians have an account with a formal financial institution. This is 42% in the case of men and 27% for women. Only 8% have debit cards and 2% credit cards. According to the government’s 2011 Census, 58.7% households utilize formal banking services.

Rating agency Crisil, a Standard & Poor’s company, has a financial inclusion index called the Inclusix. The all-India Inclusix score is 40.1 (which mean that about 40% of the country has access to formal banking services). There are wide variations — from 62.2% in the southern region to 28.6% in the eastern region.

The high-powered Nachiket Mor committee on Comprehensive Financial Services for Small Businesses and Low-Income Households, set up by the RBI, found that 60% of the rural and urban population did not have a functional bank account. “India’s financial inclusion indicators, particularly in banking, put it below the median of countries, and bank accounts are a first step to inclusion,” says Rajesh Chakrabarti, executive director of the Bharti Institute of Public Policy at the Indian School of Business.

According to a report by global consulting firm Frost & Sullivan, India’s continued growth can only be assured “if steps are taken to ensure that social and economic development is inclusive.” Financial inclusion has moved into public consciousness only over the past decade or so. “Financial inclusion can no longer be treated as a fringe subject,” notes Jayanta Nath Mukhopadhyaya, director of the J.D. Birla Institute (department of management). “It has to be recognized as an important part of the mainstream thinking on economic development.”

The immediate challenge for banks, Pradhan says, will be acquiring the technology needed to facilitate more financial inclusion. “Moreover banks need to convert the old and dormant accounts into the new financial inclusion accounts in order to get the accident coverage and overdraft facility for the account holders.” This means that some of the work done on financial inclusion so far will have to be duplicated.

“There is much more to financial inclusion” than simply opening accounts, says M.S. Sriram, visiting faculty at the Centre for Public Policy at the Indian Institute of Management in Bangalore. “The state needs to put its resources to ensure that the infrastructure backbone is available — which means that there is ubiquitous presence of interoperable point of sale devices that allow people to transact without a hefty fee…. Once this architecture is available, the poor will start transacting.”
Chakrabarti adds that the government “seems to be fighting the symptoms rather than the disease. The point is for the formal banking system to be present when needed and be superior in convenience and efficiency. However, the approach taken seems to be to lure people into banking through incentives and to hope that the habit sets in. The trouble is that once the sweetener goes away, day-to-day banking provides little benefit in convenience to many users at the bottom of the pyramid.”

Long Road Ahead
The consensus of opinion is that Jan-Dhan is a worthwhile effort, but it’s too early to say whether it will succeed. “As compared to its predecessor — the Swabhiman scheme — this program has a high possibility of success due to two major strategic improvements,” states Rana Kapoor, MD & CEO of YES Bank and president of apex chamber Assocham. “First, it mandates provision of ATM-cum-debit cards to each account holder instead of the Smartcard [for thumbprint authentication] as earlier, where the customer was solely dependent upon agents or business correspondents. ATM debit cards give 24-7 access to savings, which is critical for the below-the-poverty-line population. The quantum of savings is limited and probability of emergency requirements is high.”