Pradhan Mantri Jan Dhan Yojana: Successes, Shortcomings & Way Ahead

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Context (IE | IE | IE ): Pradhan Mantri Jan Dhan Yojana (PMJDY) launched on August 28, 2014, as a national mission for financial inclusion, completed 10 years.

PMJDY holds the Guinness World Record for opening 1.8 crore accounts in a week during its launch.

Overview

Objective: Financial inclusion through Basic Savings Bank Accounts for unbanked individuals.
Coverage: Two phases aimed at providing banking facilities to 7.5 crore unbanked households using the JAM trinity (Jan Dhan, Aadhaar, Mobile).
Current Target (2024-25): Open over 3 crore new accounts.
State-wise Analysis: Highest Accounts are in Uttar Pradesh (9.45 crore) followed by Bihar(6 crore), and the fewest in Lakshadweep (9,256 accounts).
Banking Sector Breakdown: Public Sector Banks lead with 41.42 crore accounts, followed by Regional Rural Banks (9.89 crore), private sector banks (1.64 crore), and Rural Cooperative Banks (0.19 crore).

Cost Benefits: No account opening, maintenance, or minimum balance charges.
RuPay Debit Cards: Issued to account holders with accident insurance cover up to ₹2 lakh and an overdraft facility of up to ₹10,000.
Integration with Other Schemes: Eligible for Direct Benefit Transfers (DBT), Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), Atal Pension Yojana (APY), and MUDRA scheme.

Financial Inclusion: Over 80% of adults have formal financial accounts, up from 53% in 2014 also since its launch, over 53 crore accounts have been opened.
Gender Gap Reduction: 55.6% of accounts (29.56 crore) are held by women.
Banking Infrastructure Expansion: Bank branches have increased by 46% and ATMs by 30% since 2014.
Boost to Digital Transactions: UPI has facilitated 55.7 billion transactions by July 2024.
Leakage Reduction: JAM Trinity has saved Rs 3.48 lakh crore by eliminating ineligible beneficiaries and reducing leakages.
Behavioral Changes: Increased PMJDY usage has been linked to reduced alcohol and tobacco consumption and decreased thefts in states like UP, Maharashtra, and Haryana.
Economic Empowerment: The scheme has enhanced financial security and independence for marginalized groups, with 66.6% of accounts in rural and semi-urban areas.
Increase in Banking Habits: Deposits reached Rs 2.31 lakh crore, with 36.14 crore RuPay debit cards issued. The average account balance rose from Rs 1,065 in 2015 to Rs 4,352 in 2024.
Access to Banking Facilities: 99.95% of inhabited villages have banking access within a 5-km radius.
Social Benefits: PMJDY has facilitated direct benefit transfers, with Rs 38.49 lakh crore transferred via DBT over the past decade, as well as COVID-19 financial assistance and PM-KISAN.

Despite a large number of accounts, a portion remains inactive (around 20 percent of PMJDY accounts).
The push for financial inclusion has raised concerns about the potential for over-indebtedness.
Many account holders, especially in rural areas, lack sufficient financial literacy to utilize the services.
Some accounts have low transaction activity, indicating that they are not being effectively used.
Despite progress, certain areas still face challenges in accessing facilities due to infrastructure gaps.
The rapid expansion of digital financial services has outpaced the development of consumer protection frameworks, leaving some users vulnerable to fraud and exploitation.
The scheme has primarily been driven by public sector banks, with limited involvement from private sector banks, which could affect the sustainability of financial inclusion efforts.
The lack of customer-centric financial products tailored to the needs of economically marginalized groups has limited the scheme’s impact on long-term financial security.

Strengthen Financial Ecosystem: Enhance private-sector participation in financial inclusion through partnerships and collaborations.
Promote Financial Literacy: Focus on financial education to ensure that account holders, especially in rural areas, can effectively use banking services.
Expand Product Penetration: Increase the availability of micro-insurance, credit, and other financial products while avoiding the risk of over-indebtedness among new entrants.
Enhance Consumer Protection: Develop a robust consumer protection framework to safeguard users of digital financial services from fraud and exploitation.
Customer-Centric Product Design: Tailor financial products to meet the specific needs of PMJDY account holders, considering their irregular income patterns and unique financial requirements.
Leverage Digital Technology: Continue to integrate digital solutions like UPI and the Unified Lending Interface to make banking more accessible, efficient, and user-friendly.
Interlink Government Schemes: Explore the integration of PMJDY accounts with other government welfare programs to ensure a comprehensive approach.
Monitor and Activate Dormant Accounts: Implement strategies to encourage the active use of accounts, reducing the number of inactive accounts.