Money & Banking

Why private banks lag on the Jan-Dhan front

Satyanarayan Iyer Beena Parmar Mumbai | Updated on January 24, 2018


While private sector banks have shown impressive performance on a host of parameters, such as net profit growth and better asset quality, their performance with regard to the Pradhan Mantri Jan-Dhan Yojana (PMJDY) has been far from impressive.

According to data up to January 12, 2015, private banks have opened a mere 3.14 per cent of the total accounts opened under the scheme.

This translates to 35.08 lakh accounts out of a total of 11.16 crore accounts opened. Of these, two private sector banks — HDFC Bank and ICICI Bank — have opened about 40 per cent of accounts.

Public sector banks have opened 8.84 crore accounts and regional rural banks 1.96 crore accounts since August, when the scheme was launched.

Reasons aplenty

Private sector bankers say there are several reasons why account opening by them has been disproportionate to the assets they hold. Private banks control approximately 21 per cent of all assets in the banking system.

None of the private bankers wanted to come on record because finance ministry officials are well-versed with the issues these banks raise in the weekly progress call.

One private sector banker said the areas allotted to them are not where they currently do business or intend to do business anytime soon. “There are issues with distribution of territory to open these accounts,” the banker said, adding, “this is not at par with penetration of the bank’s branches.”

Another private sector banker cited viability issues related to private sector banks not stepping on the gas with respect to the scheme.

“The account’s viability has to be looked at. The operating costs and average balances are the concerns. It has to be also viable from other products’ point of view as well. On a standalone basis, it is difficult to make it sustainable,” he said According to indications, this is borne out in the numbers put forth by scheme managers on the website.

According to the figures, there are 8.69 crore accounts where not a single rupee has come in. The overall balance in the remaining accounts totalled Rs. 8,760 crore as on January 12. This translates to a balance of about Rs. 2,910 per account in the remaining 3.01 crore accounts.

Early days?

But is it valid to judge the viability of a business so soon? According to the chairman of a public sector bank, “Opening of these accounts is certainly not a loss-making business. We are not making any money on it yet, but nor are we losing anything.”

It will take some time for the money to flow in and the direct benefits transfer scheme of the government will play an important role in swelling the cash balances in these accounts, he added.

The key factor will be spreading awareness and encouraging the public to keep money in their accounts, while banks will have to work hard to create awareness, according to the public sector banker quoted above.

“Private banks always enter all such businesses late…they simply want to ride on the infrastructure that public sector banks put in place,” he claimed. Another private banker was more forthcoming when he said, “It’s a mindset issue as well for private banks. We need to look at it as a business model. Breakeven cost Rs. 120 per account.”

In comparison, the cost of opening these accounts is Rs. 200-250 per account.

Published on January 19, 2015

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