Jan Dhan: banks want fund to help cover overdraft defaults

Banks have requested the Finance Ministry to quickly set up a credit guarantee fund to cover possible delinquencies in overdrafts they extend to account holders under the Pradhan Mantri Jan-Dhan Yojana.

With two months to go for the first set of account holders to become eligible for an overdraft (OD), the matter has assumed urgency. PMJDY was launched on August 28 last year, as a national mission for financial inclusion.

Banks had collectively opened a record 2.20 crore basic savings accounts for people from weaker sections and low-income groups under the Yojana in the first two days. These account holders become eligible for an OD from February-end/early March.

Under the Yojana, banks can provide an OD of up to ₹5,000 after six months of satisfactory performance, in terms of operations, savings, and credit history. As the OD extended under the Yojana is unsecured, banks have sought creation of a credit guarantee fund to cover possible defaults, said a senior official at a public sector bank.

In the event of a default, the fund will make good the loss incurred by a bank up to a certain portion of the credit facility. The corpus of the fund should be large enough to take care of any delinquency, the official added.

Under the PMJDY, the OD facility will be made available to only one account in a household, preferably to a lady member. This facility will also be extended to accounts opened prior to PMJDY and that have been tagged under the Yojana.

The OD facility is envisaged as an exigency fund for poor borrowers to meet basic needs, such as health and farming. The idea is to bring people — both rural and urban — out of the clutches of moneylenders.

Learning to manage this account, according to the Yojana, will be the first step to a larger loan, by creating a credit history.

The rate of interest on the OD has been proposed at the base rate plus 2 per cent or 12 per cent, whichever is lower (including fees to be paid to the credit guarantee fund). Banks have also requested the RBI to treat the ODs as loans to weaker sections, helping fulfil their priority sector lending obligation. Since all government benefits will flow into the PMJDY account, it will facilitate servicing of interest and reduce the chances of the account becoming dormant.

As on January 7, banks have collectively opened 10.84 crore basic savings bank accounts under the Yojana. About 73 per cent (or 7.88 crore) of these are zero-balance accounts.

The remaining 2.96 crore accounts have balances aggregating ₹8,545 crore.

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