Mukesh Sadana and Lokesh Kumar Singh
On August 28, 2014, the Government of India launched a massive nationwide program to provide bank accounts to all the unbanked households. It was a meticulously planned program. The Census 2011 base data was used for identification of unbanked households and by January 31, 2015; more than 125.47 million (12.5 crore) accounts were opened.
Banks have continued opening accounts for the unbanked under PMJDY at similar pace ever since. By April 7, 2021, more than 422.2 million (42.22 crore) accounts were opened under PMJDY. These accounts have many added benefits such as overdraft facility of ₹10,000 for account holders between the age of 18 and 65; and accidental insurance cover of ₹ two lakhs for the RuPay card holders whose accounts were opened after August 28, 2018 (it is ₹ one lakh for those who were issued RuPay card before this date).
These accounts proved useful during the lockdown in 2020 when the Government of India transferred financial support of ₹500 per month for three months to women account holders. Subsequent financial support, by the Government of India and various state governments, were also routed through bank accounts of the beneficiaries, including Jan-Dhan accounts. In total, a financial assistance of ₹68,820 crores (₹688.2 billion or approximately $9.8 billion) was disbursed to 42 crore (420 million) accounts between April and December 2020.
However, has this been an un-chequered success? Our analysis suggests that there may be a need to check for a few probable discrepancies and flaws. Let us unpack this argument.
In the phase one, which ended on January 31, 2015, public sector banks (PSBs), regional rural banks (RRBs) and private sector banks (Pvt. Banks) opened a total of 125 million. Not surprisingly, PSBs followed by RRBs opened the highest number of accounts. However, the private banks also contributed to the program significantly. Roughly 98.4 million accounts were opened by customers in PSBs, 22 million in RRBs and the remaining in the private sector banks.
As per the program prerequisite, the households where none of the members had a bank account (rural and urban both) were the target. PSBs opened approximately equal numbers of accounts in rural and urban locations (54 and 46 percent respectively). By virtue of their mandate and physical presence, 85 percent of the accounts opened by RRBs were rural. However, quite surprisingly, 62 percent of the accounts opened in the private sector banks (5.2 million) were also in rural areas.
Undoubtedly, in terms of outreach, PMJDY has been an unprecedented success. Following this massive outreach, most of the government subsidies, scholarships, and pensions etc. were linked to Jan-Dhan accounts.
However, the numbers available in the public domain do not add up. Basic analysis of PMJDY numbers leads to some questions that could form the basis for an audit-of-sorts to help the policy-makers tie the loose ends. We acknowledge that there is a possibility that these questions may change or vanish if additional information and more data are available in public domain.
PMJDY Phase 1 (Aug 24, 2014 to Jan 31, 2015)
|No. of Accounts||Balance (₹ Lakhs)||Avg, Balance (₹)|
A point worth noting here is that the average deposit amount in PMJDY accounts has increased over the years. This trend should not lead to any questions considering the period between 2015 and 2019 was a normal period, and that the PMJDY account holders may have deposited whole or part of their savings in these accounts. It is also a fair assumption that being unbanked, when they started using the bank account and experienced its utility, they started saving and thus depositing more with passage of time.
During the first phase the average balances in the accounts as on January 31, 2015 was ₹836.80. Amongst the three categories of banks, the balance in the accounts held in the private banks was the highest at ₹1,385 (quite understandable); however, as the number of accounts in the private banks was small, the weighted average was closer to the average amount in the PSBs and RRBs.
Encouraged by success, in August 2018, the Government decided to expand the focus from “every household” to “every adult”. This was done, despite some reports that more than one-third of the accounts were dormant in 2015, and a significant number had zero balance. Later in January 2020, the GoI admitted in the Parliament that 18.7 percent of the PMJDY accounts were dormant. Similarly, In January 2021, the Ministry of Finance shared that 7.5 percent of the accounts had zero balance. Therefore, the percentage of accounts that are not in use lies somewhere between 18 and 25 percent (the two extremes being all the zero balance accounts are dormant, and none of the zero balance accounts are dormant).
However, when the pandemic hit in March 2020, the economy went upside down. Millions of people lost their livelihood overnight. Intriguingly the average deposits that increased substantially in 2020, before the pandemic spread and lock down was announced, continued this upward trajectory even during the lockdown period. There was a slight dip during the second half of 2020 but the increase resumed shortly thereafter. While the average deposits were approximately ₹2814 in 2019, the average deposits in 2020 were ₹3240.
The RBI in a paper mentioned that the household savings increased due to the higher risk perception and lower consumption during and after the lockdown; later when the economy started normalizing the household savings took a downward trend. Even if we accept this hypothesis, it may apply to households with certain disposable income. For households with meagre incomes (forming bulk of the PMJDY accounts), one would expect the deposits to sharply dip during this period. Any deposits if made are most likely to have been the payments made by the government under support programs. The total deposits and average deposits in PMJDY accounts have been on an upward trajectory and haven’t slowed down ever since. We concede that MGNREGS must have played a role in this. Additionally, the Government of India provided financial support by depositing amounts directly in PMJDY accounts held by women. But then, was this money not withdrawn; if not then why? Or were the aggregate deposits more than the aggregate withdrawals? Or, is there something that we are missing completely? Why did account owners not withdraw the financial support amounts that were disbursed to cope with the difficult times? One would presume that the total deposits would have reduced to below pre-Covid levels, but that is not the case.
There can be two possible explanations for this and both are equally worrying. First is that the beneficiaries were not able to withdraw these amounts. This could be due to a variety of reasons, such as absence of a withdrawal point within easy reach (remember we are talking about lockdown period), or the account holders not knowing about the existence of their PMJDY account or money being credited in it, or the account being dormant for which bank may have disallowed withdrawal. Another equally plausible reason could be that a substantial proportion of the accounts are not owned by those who were unbanked; and probably individual banks (presumably under target pressure) did not bother to check duplication. These are accounts of the general customer (may even be their second or third account) but mapped as PMJDY accounts. These account holders always had sufficient balance in their accounts to start with. Yet as their accounts were opened by the banks under PMJDY (presumably because of target pressure), they received funds from the government and they never withdrew thus increasing the aggregate deposit amount. If so, the impact of the money that was transferred, to spur consumption, was lost.
If this sounds far-fetched, let us take a look at the following graphs.
To make the graph easy on the readers’ eyes, banks with less than 10 million (one crore) PMJDY accounts have not been included in the first graph, though a few of them have been shown in a separate graph. During 2019, there is nothing significant that happened with the deposits; however, in the first quarter of 2020, two events took place. Lockdown followed by certain measures taken by the government to support the poor households; and merger of certain banks took place. Maximum impact of merger on the average balances is on Punjab National Bank. As is evident from the data, the average balance in PMJDY accounts in PNB during 2019 was approximately ₹2,550, it increased to ₹4,650 in April 2020 and thereafter continues to be the highest amongst the PSBs at ₹4,000 after some initial decline. This can be directly attributed to the average balance in the two banks that merged with PNB in April 2020. The average balance in PMJDY accounts held in the United Bank of India was
₹5,800 and in the Oriental Bank of Commerce was upwards of ₹8,500. Other banks, except Bank of India, appear to have a normal trend of an increase during the first quarter of 2020, followed by a slight decline before increasing again during the period of Dec 2020 to Apr 2021. (Calling it normal as all of them are showing the same trend).
For private sector banks, an interesting nugget about average balances in PMJDY accounts is the clubbing or bunching of banks in three distinct categories- high (J&K Bank, HDFC Bank, and Federal Bank); average (Axis Bank, IDBI Bank, and South Indian Bank), and low (all other private sector banks including ICICI Bank and RBL Bank).
Undoubtedly, PMJDY accounts did much good for the unbanked population. These have proved immensely useful for household savings as well as for transfers of government subsidies and emergency financial support during the pandemic induced lock down. However, the available data makes one question if all is well with intended impact. While the program certainly addresses type-1 error (leaving out intended beneficiary) but in order to do it, it overcompensates with duplicate accounts, dormant accounts as well as account for ineligible (Type-2 error). It would certainly merit a closer scrutiny at data to weed out and un-map ineligible account holders from PMJDY benefits. Such validation will save huge amounts plugging leakages (one of the intended benefits of opening bank accounts), and leave the government with extra funds to support the vulnerable.