Banking for growth: PMJDY has improved financial inclusion. What next?

The Pradhan Mantri Jan-Dhan Yojana (PMJDY), launched a decade ago, has significantly furthered the cause of financial inclusion. By facilitating basic savings accounts, credit, and insurance for the unbanked population, the scheme has ensured universal and affordable access to formal banking services. A remarkable 531.4 million people have been included in the PMJDY so far, with nearly 55 per cent of account holders being women, and 67 per cent of the accounts opened in rural and semi-urban areas. Thus, the scheme has performed well on at least two counts: Its rural outreach and bridging the gender divide in financial inclusion. In the long term, financial inclusion can have positive economic spillovers. Since its inception, accounts opened under the scheme have been no-frills accounts with zero account-opening fees or maintenance charges. Total deposit balances increased by about 15 times between 2015 and 2024. At the same time, the average deposit balance reached an all-time high of Rs 4,476 in March 2024, up from the Rs 1,065 in March 2015.
 

The PMJDY has not only worked towards financial inclusion but has also accelerated the pace of digitisation of banking and financial services. With the issue of over 360 million RuPay debit cards, the installation of 8.97 million point-of-sale (PoS) machines, and the introduction of mobile-based payment systems like Unified Payments Interface (UPI), the worth of digital transactions has gone up from Rs 2,338 crore in 2018-19 to Rs 16,443 crore in 2023-24. Further, the PMJDY has helped improve governance quality. The JAM (Jan Dhan, Aadhaar, mobile phone) trinity, coupled with cheap data services and telecom tariffs, has revolutionised the government’s system of transferring benefits, including subsidy payments and wages under the Mahatma Gandhi National Rural Employment Guarantee Act, through direct benefit transfers. In fact, poorer states like Uttar Pradesh and Bihar have registered the highest number of beneficiaries under the scheme. The data shows only about 20 per cent of the accounts remain inoperative, indicating that it has done well in anchoring financial inclusion in the country.
 

The bank accounts, launched with a bouquet of benefits linked to them such as the overdraft (OD) facility, life insurance cover, and accidental insurance benefits have also enabled credit access to those without a formal financial history. The availability of bank accounts helped in providing cash assistance during the pandemic. While banks will have to do their due diligence before extending credit under the OD facility, it will help deepen credit access in the country. For instance, more than 100,000 OD accounts were opened as of March 2024. Further, the PMJDY data can be used under the Unified Lending Interface (ULI) to extend credit to account holders. Easy availability of credit from the banking or formal system can provide significant relief to small borrowers who often borrow from local moneylenders at exorbitant rates. With deposit and credit facilities broadly in place, the government should now focus on spreading financial and digital literacy. Increased financial awareness will boost financial savings, improving stability at both the micro and macro levels.