Jan Dhan accounts slip on credit score

After demonetisation was announced last Nov, Jan Dhan deposits increased to more than Rs 74,000 cr

Making Jan Dhan accounts eligible for credit has become a key concern for banks to keep the scheme viable, after having achieved its broader objective of financial inclusion.

At present, less than 15 per cent of the accounts are credit-linked, according to informal estimates from banks. The lenders are now pushing for the overdraft facility of Rs 5,000, which comes with the accounts, to customers. 

However, with a large number of account-holders deemed non-creditworthy, credit linkage is turning out to be a difficult task, bankers say. 

Meanwhile, the huge pool of low-cost deposits, which banks had accumulated on account of demonetisation, is drying up.

For example, at UCO Bank, more than 50 per cent of savings accounts deposits accumulated during demonetisation have now been withdrawn, according to R K Takkar, managing director and chief executive officer, UCO Bank. A large chunk of the deposits came in Jan Dhan accounts. 

“Once the average balance in Jan Dhan accounts is Rs 5,000-10,000, they will become a viable business proposition. At present, the average balance is around Rs 2,500,” said Takkar. 

Soon after demonetisation was announced last November, the Jan Dhan deposits increased to more than Rs 74,000 crore. According to the government data, as of August 9, 2017, the deposits amount to close to Rs 65,698 crore, in about 294 million accounts. Thus, close to Rs 8,300 crore was withdrawn over the past eight months. 

“The social objective of the Jan Dhan Yojana has been fulfilled and a lot of government schemes are also getting routed through the accounts. But unless we can credit-link the accounts, they are just adding to the additional cost for banks. Banks are now pushing for credit linkage but are facing tough competition from entities like microfinance institutions,” said an executive of a public sector bank. 

A number of small finance banks and microfinance institutions are catering to Jan Dhan account-holders in rural areas. 

At State Bank of India, budgets have been assigned at the branch level for credit-linking Jan Dhan accounts.

As of August 9, 2017, the balance in the Jan Dhan accounts at SBI (excluding through regional rural banks) stood at Rs 13,906 crore.

“The cost of transactions in Jan Dhan accounts is high. We have assigned budgets for this purpose, and perusing credit linkages at various levels,” said a senior SBI official.  

The banks are also pushing for loans to Jan Dhan account-holders through self-help groups (SHGs). However, over the past few years the SHG programme itself has been facing stiff competition from microfinance institutions. 

As of March 31, 2016, the gross non-performing assets of bank loans to SHGs stood at a high of 6.4 per cent, according to data from the National Bank for Agriculture and Rural Development (Nabard). 

Earlier this year, to offset the cost of the Jan Dhan accounts, SBI had levied a penalty for not maintaining a minimum balance.

The deposits in the Jan Dhan accounts had surged almost 45 per cent in about 23 days between November 8, the day Prime Minister Narendra Modi announced demonetisation, and November 30, when they had peaked. 

The deposits had swelled from around Rs 45,000 crore to more than Rs 74,000 crore in the period.