Banks will offer ₹5,000 overdraft (OD) to verified women Self Help Group (SHG) members having Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts to meet their credit needs without insisting on security and end use amid the ongoing pandemic.

In this regard, the Indian Banks’ Association (IBA) has formulated a ₹5,000 OD scheme to provide hassle-free credit to low-income group/ underprivileged women within the existing PMJDY OD scheme of ₹10,000.

The scheme has been put together keeping in view the 2019-20 Budget announcement that for every verified woman SHG member having a Jan Dhan Bank Account, an overdraft of ₹5,000 shall be allowed.

Omicron threat

It also comes in the backdrop of looming threat of Omicron variant, which could impact incomes and demand. To get an OD, PMJDY accounts of the verified women SHG members should have been operated satisfactorily for at least six months; the account should be active with regular credits; and the PMJDY account holder should not be maintaining any other savings bank account with the same bank.

Further, OD will be granted to the earning individual; regular credits should be sufficient enough to service the interest charged on OD account on yearly basis; and applicants should be between 18 to 65 years.

Kisan Credit Card/ General Credit Card borrowers and more than one member of the same family are not eligible for OD. The interest rate that banks will charge for OD is their MCLR, plus 3 per cent. For example, if a bank’s one-year MCLR is 7.25 per cent, the OD customer will pay 10.25 per cent interest.

Banks will be provided the list of verified women SHG members by the National Rural Livelihood Mission (NRLM)/National Urban Livelihood Mission (NULM).

Since NRLM/ NULM already have the details of loans sanctioned to SHGs as shared by banks, the missions will put in place a system to prevent members of a defaulting SHG from applying for OD facility. Further, banks can do Credit Information Bureau check for individual members..

Per the scheme, a SHG cannot stand guarantor to the loans as banks will seek credit guarantee cover under Credit Guarantee Fund for Micro Units.

However, parent SHGs will regularly monitor and educate members on timely repayment. Members who have taken loans from micro finance institutions or SHGs will be eligible for the OD facility.

However, if a member has already availed OD facility against her PMJDY account, she will not be eligible for another OD.

SHGs are small informal group of 10-20 individuals, who are homogenous with respect to social and economic background. They come together voluntarily for promoting savings habit among members and for a common cause to raise and manage resources for the benefit of group members. As of March-end 2021, there were about 1.10 crore SHG, according to NABARD.

Access to services

PMJDY provides access to various financial services such as basic savings bank account, need-based credit, remittance facility, insurance and pension to the excluded sections – weaker sections and low-income groups.