Crime & Intoxication drops where PMJDY flourishes
Sound financial inclusion policies have a multi pl i e r e f f e c t o n economic growth, reducing poverty and income inequality, while also being conducive for financial stability. India has stolen a march in financial inclusion with the initiation of PMJDY accounts since 2014, enabled by a robust digital infrastructure and also careful recalibration of bank branches and thereby using the BC model judiciously for furthering financial inclusion. The number of bank branches per 100,000 adults rose to 14.7 in 2020 from 13.6 in 2015, which is higher than Germany, China and South Africa, says Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, in a recent research report.
DIGITAL PAYMENT LED FI
Such financial inclusion has also been enabled by use of digital payments as between 2015 and 2020, mobile and internet banking transactions per 1,000 adults have increased to 13,615 in 2019 from 183 in 2015.
In the last 7 years of launch of PMJDY scheme, the total number of accounts opened under PMJDY has reached 437 million, with `1.46 trillion of deposits as on October 20, 2021. Of these accounts, nearly 2/3 are operational in rural and semi-urban areas. More than 78% of PMJDY accounts were with PSBs and 18.2% are of RRBs, while non-PSBs’ share is 3%.
SBI’s research also shows that states with higher PMJDY accounts balances have seen a perceptible decline in crime. It has also been observed that there is both statistically significant and economically meaningful drop in consumption of intoxicants such as alcohol and tobacco products in states where more PMJDY accounts are opened.
OUTLETS IN VILLAGES UP
The number of `Banking Outlets in Villages - BCs’ has risen from 34,174 in March’10 to 1.24 mn in December’20. Such progress shows an impressive outreach of banking services through branchless banking. However, the success of financial inclusion depends upon Banking Correspondents (BCs), who are micro-level entrepreneurs. Interoperability of transactions is permitted by RBI at the retail outlets or sub-agents of BCs ( at the point of customer interface), subject to certain conditions. Herein lies the problem.
7 BN INTERCHANGE FEE
The research report from the State Bank of India’s Economic Research Department further notes that it is sometimes observed that there is no uniformity among the BCs across banks regarding adherence to the above guidelines. PSBs mostly follow `Branch Led BC Model’, while other banks follow `Branch Less/ Corporate BC model’. The BCs of PSBs extend basic banking services, including opening of accounts, from a fixed location under the oversight of specific bank branch. The BCs of other banks operate through `Micro ATM/Kiosk Application on Mobile’ and primarily provide feebased financial services, viz. withdrawals and remittance services, using hand-held devices. This also adds to the bottom-line by way of interchange fee from the PSBs or remittance fee from PSB customers.
As a typical example, BCs convert AePS ON-US transactions of one set of bank customers, to AePS OFF-US issuer transactions and also carry out multiple AePS ON-US and AePS OFF-US transactions on the primary bank application/software. Data indicates that the share of OFF-US transactions in AePS increased from 4% in September’16 to 51% in September’21. Considering these facts, PSBs (that opened around 77% of the PMJDY accounts) are now net payers of interchange fee. It is estimated that the PSBs could be paying around `6-7 bn per annum as interchange fee.
FINE-TUNE BC MODELS
The following recommendations have been suggested in the report to make the BC model more rigorous and uniform across all banking entities.
Firstly, as AePS works like a Point of Sales (PoS), logically the ` acquiring bank’ should pay the interchange fee to the ` issuing bank’. Alternatively, there could be rationalization in interchange fee as there is no level playing field in infrastructure provided by all banks. With requisite savings, banks can further strengthen/upgrade their BC model and promote financial inclusion in a more holistic manner.
Secondly, RBI should disincentivise BCs who are converting the ON US transactions of PSB customers to AePS OFF US transaction in order to earn interchange fee and more commission. For this, a comprehensive database of BC agents be prepared through IBA’s BC registry, JanDhan Dharshak App and RBI’s CISBI portal.
Additionally, the log-in to the AEPS applications of the non-branch BC model must be through Aadhaar authentication. This will prevent anyone from logging and performing unverified transactions. This will also result in BCs and their friends and relatives not being able to game the system by opening accounts with multiple banks and performing round tripping/ withdrawals.
Some minor tweaks in the existing branch less BC model could act as a multiplier for promoting financial inclusion objectives. This is all the more important as 347 million informal labour force is currently being formalized through the E-Shram portal.