Universal financial access faces multiple challenges

The ambitious Jan Dhan Yojana, launched by the Narendra Modi government on Thursday, with a much closer deadline of January 26, 2015 as against August 2015 proposed earlier, will be a Herculean task, said bank and insurance executives.

With an ambitious target of opening 75 million bank accounts, banks face a daunting task on three counts — scaling up operations, financial literacy and managing the business correspondents (BCs) ecosystem, according to a Bank of India executive.

The executive said the dependence on BCs is going to be higher with use of micro automated teller machines (ATMs). The last-mile connectivity and delivery of services would be crucial.

HDFC ERGO will be the insurance company providing the cover for the RuPay card offered under the Jan Dhan Yojana. This plan will cover accidental deaths if the card is swiped within 45 days of its issue and is in an active state.

But going forward, a life cover of Rs 30,000 will be provided by Life Insurance Corporation (LIC) of India. This life insurance cover will be given to all customers who open a bank account before January 26, 2015. While the PM did not give any clarity on the additional accident insurance cover, sector officials said within the next few weeks, state-owned general insurance companies will provide Rs 1 lakh additional cover subject to some conditions.

There had been challenges in making effective use of mobile BCs to reach unbanked households. A major difference with the earlier programme was in ensuring uniform coverage with fixed-point Bank Mitras instead of mobile BCs covering only bigger villages. This is to help ensure most places will have access to banking services within a reasonable distance, say about five km, by August 2015. Areas facing telecom connectivity and infrastructure constraints will be covered by August 2016.

Some technology issues such as offline transactions and lock-in to a particular vendor had hampered further scalability of the campaign. Even in online accounts, the server was kept separately, preventing the account holder from operating the account from locations other than with a BC.

Insurance sources said there were challenges of managing duplication of accounts. While the banks are integrating their systems to ensure that one person does not open multiple accounts, claims processing could be a concern.

“The Rs 1-lakh accident insurance is particularly useful for daily wage labourers and blue-collar workers whose risk profiles are much higher than ordinary professionals in the organised working space. Hence, the claims processing for these cases would be an arduous task due to the sheer numbers involved. If any cases of duplication arise, claims processing would be a lengthier process to ensure that rightful claims are not rejected,” said the chief general manager at a state-owned insurance company.

With multiple tiers of insurance being involved, micro-offices of government-owned insurance companies would be activated to provide assistance to customers. Also, if the existing policies are to be renewed even after the card is not active, insurers will make arrangements for that.

RuPay debit card offers personal accident insurance and permanent disability of Rs 1 lakh to the cardholder subject to the condition that the card is kept in activated condition.

Normal banking activity has been affected in the banks for the past few days due to the financial inclusion initiative.

Insurance executives said opening accounts within January 26 would be a task, providing insurance covers to all account holders would be a huge task. “We may have to hire more personnel at the back-end to deal with claim related services,” said an official.