Many new accounts in India; many dormant ones too: World Bank

By Jan-end 125 mn new bank accounts were opened under Jan Dhan Yojana, but 72% of these had zero balances

Bank account penetration in India increased from 35 per cent to 53 per cent between 2011 and 2014, but the country also suffers from high dormancy rates, says a World Bank report.

Translated into absolute numbers, this growth in number of bank accounts means that 175 million in India became account holders between 2011 and 2014.

According to the World Bank, the rise in number of bank accounts was to a large extent due to government's push for financial inclusion.

In August 2014 the Indian government launched Pradhan Mantri Jan Dhan Yojana scheme for comprehensive financial inclusion with the goal of opening a bank account for every household.

"By the end of January 2015 it had led to the opening of 125 million new bank accounts; as a point of comparison, a 2013 survey had found that fewer than 400 million people in the country had an account," the report said.

Under the scheme more than 97 per cent of the accounts were opened with the public banks, but around 72 per cent of these accounts show zero balances.

The World Bank report also noted that dormancy rate in India is quite high at 43 per cent and accounts for about 195 million of the 460 million adults with a dormant account around the world.

In sharp contrast, in high income OECD economies the dormancy rate is as low as 5 per cent.

Moreover, only 39 per cent of all account holders in India own a debit or ATM card, and using an account might be inconvenient and time-consuming if every transaction requires using a bank teller.

In India not only account penetration is comparatively low, at 53 per cent, but so is the use of accounts for payments - mere 15 per cent of adults reported using an account to make or receive payments.

In Brazil and China about 40 per cent of adults reported using an account to make of receive payments.

Meanwhile, most of the world's unbanked are in China, India and Indonesia.

The country is home to 21 per cent of the world's unbanked adults and about two-thirds of South Asia's. China accounts for 12 per cent and Indonesia 6 per cent.

According to the report, globally, from 2011 and 2014, 700 million people became account holders at banks, other financial institutions, or mobile money service providers, and the number of 'unbanked' individuals dropped 20 per cent to 2 billion adults.

Studies show that broader access to, and participation in, the financial system can boost job creation, increase investments in education, and directly help poor people manage risk and absorb financial shocks.