Friday, August 29, 2014

Jan Dhan Yojana

15 million savings accounts were opened in Indian banks on 28th August. Financial inclusion is certainly desirable. If accounts are based on targets, there is an inherent potential for misuse.

If KYC norms were too strict earlier, we are now erring on the other extreme. RBI has permitted banks to open accounts even if the depositor has provided proof only for an earlier address and the current address is only self-declared. When rules are relaxed, the probability of benami accounts increases.

What then is the incentive for opening benami accounts? Clean overdraft of Rs.5,000 per account is an invitation to aggravated bad debts. One can also open multiple accounts in different banks and get Rs.5,000 overdraft in every account.

Provision of accident and life insurance is a thoughtful step. Finance ministry deserves to be thanked for this social welfare measure the need for which was felt for a long time.

Narendra Modi, the shrewd politician, is shoring up his vote-bank through this scheme. Banks need to be extra-careful to prevent misuse of the scheme by fraudsters. It is too early to forget the IPO loan fiasco.

It is surprising that there is no dissenting voice from banks, commercial or central. Whenever there is no contradictory opinion that is openly expressed, we are seeing the beginning of some adverse development.

Added on 4th September:

It is surprising that it is not yet decided how and who will bear the premium for life insurance. It is reported that LIC is not willing to meet the cost by itself. Annual premium is expected to be around Rs.750 crore. This is a social expenditure which has to be met by the government. It is neither good politics nor healthy economics to herald a new scheme with many loose ends.

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