There is no argument about the need or the importance of financial inclusion. The vast unbanked population of India holds a lot of potential. When these people, mostly in rural areas, are brought under the formal banking system a lot of opportunities opens up. As more and more people avail of banking services, cash based transactions will automatically reduce. Other than this, schemes like the Jan Dhan Yojna provide benefits like insurance cover and over draft facility. The scheme has been a success as far as the roll out is concerned.
However, a new concern has come up recently. With the successful roll out of the scheme, it has been revealed that a large number of accounts have zero balance. Will small regular subsidy payments be enough to make these accounts viable? It must be kept in mind that the scheme is operated by banks and not the government per se. Thus, if these accounts are not profitable in the long term, the banks could find it difficult to sustain them.
There is also the thorny issue of the Rs 5,000 overdraft that these accounts provide. The banks have not yet come up with a way to handle the same. Their problem is understandable. They do not have any way to measure the credit worthiness of the customers. This is certainly a challenge for banks. The Reserve Bank of India (RBI) too has cautioned Indian banks about the dangers of unbridled financial inclusion.
We believe there is no doubt that these challenges will persist. Bringing such a large number of people under this scheme is bound to bring in a few problems as well. It is imperative that if schemes such as this have to be sustainable; the necessary checks and balances need to be in place. We are not convinced that this has been done. The RBI and the banking system in general will need to be extra vigilant to ensure that large financial inclusion schemes such as this one have a happy ending.