Jan Dhan Yojana: Banks gear up to lend Rs 1.65 lakh crore through overdraft faclity

Under the scheme, the first major policy announced by the Modi government since coming to power, accounts holders are given a free debit card and an overdraft of Rs 5,000, provided they manage to show some transaction within six months.<br />

FP Staff September 29, 2014 14:43:44 IST
Jan Dhan Yojana: Banks gear up to lend Rs 1.65 lakh crore through overdraft faclity

The government is prodding banks, mainly state-run lenders, to lend up to Rs 1.65 lakh crore through the overdraft facility to about 33 crore customers, who were given bank accounts under Narendra Modi's flagship financial inclusion programme, Jan Dhan Yojana, despite the Reserve Bank of India (RBI) cautioning about the way the scheme is implemented.

The central bank has been warning the government on hurrying to implement the scheme without proper know your customer (KYC) norms, saying such an exercise could result in duplication of accounts and misuse of the facility.

Under the scheme, rolled out on 28 August by Narendra Modi, banks are required to open accounts to the yet-to-be-banked with minimum KYC, offer a free debit card, Rs 5000 overdraft facility, Rs 1 lakh accident insurance cove and Rs 30,000 life insurance facility.

Modi has given a target of 7.5 crore to banks by 26 January.

The government has written to state-run banks outlining the total chunk of money needs be given to about 33 crore basic account holders--about Rs 1.65 lakh crore, a report in the Indian Express said. If indeed this entire amount is given away to new account holders, this can result in potential bad loans in the books of banks.

The Finance Ministry has reportedly said that the roll out of the overdraft facility for account holders will be in a phased manner with the amount initially being set at Rs 1,000 and then increased within the next six months if the banks felt the performance was satisfactory, said the Indian Express. The rate of interest is proposed at 11 per cent, reported the Indian Express quoting a letter from the ministry.

The Finance Ministry is also estimating that one in every 20 accounts will default on repaying these overdrafts and will be creating a credit guarantee fund with a corpus of Rs 1,000 crore to provide a guarantee for such cases and will be funded by NABARD's Financial Inclusion Fund, the report said.

But bankers are concerned about potential defaults.Under the scheme, the Rs 5,000 overdraft facility will be given to the customer provided he/she manages to show some transaction within six months.

Official estimates collated by Firstbiz suggest that among the country's banks, the largest lender, State Bank of India opened 20 lakh accounts in the first day of the programme itself, while Punjab National Bank opened 13 lakh and Union Bank opened 9.4 lakh.

The RBI has already flagged the scheme to banks saying that the lack of documents while opening bank accounts could result in duplicate accounts that could be misused by account holders and as this piece notes the central bank and the government could be headed for a face-off.

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