The government’s flagship Pradhan Mantri Jan Dhan Yojana is seen to have expanded the reach of banking services in India. 80 percent of the country’s population now has bank accounts, according to the latest edition of the World Bank’s financial inclusion index released earlier this month.
India’s private banks, however, have had little to do with this expansion in access to formal banking. Only 3 percent of accounts and less than 3 percent of Jan Dhan deposits are held by private banks, shows data available on the official website of the scheme. Total deposits in such accounts crossed Rs 80,000 crore for the first time this month.
A break-up of the deposits shows that private sector banks held only Rs 2,200 crore of the total deposits as on 18 April, 2018. This is a mere 2.7 percent of the total Jan Dhan deposit base and well below the share of private banks in the total deposit base of the banking sector. According to RBI data, private banks held 15.7 percent of all bank deposits as of December 2017.
The share of Jan Dhan deposits with private banks has also declined on year-on-year basis from 3.3 percent last year to 2.7 percent now.
A deeper look at the data shows that 65 percent of the total Jan Dhan deposits with private sector banks are in accounts held by HDFC Bank and J&K Bank. The latter is often counted as a quasi-public sector bank since the state government is a majority shareholder in it.
As last count, HDFC Bank held Rs 852 crore in Jan Dhan deposits. ICICI Bank and Axis Bank, the second and third largest private banks by asset base, lagged far behind.
The lack of participation by private banks in a financial inclusion focused scheme is not surprising as the economics are not commercially viable, said Alok Prasad, a veteran banker and former head of the Microfinance Institutions Network (MFIN). There is no business incentive for a bank to cater to account holders maintaining nil or low balances, he said.
Prasad also pointed out that public sector banks had little choice but to push the scheme. “It was launched in a mission mode with the public sector banks being given aggressive targets with daily monitoring by the Ministry of Finance.”
Rajeev Ahuja, executive director of RBL Bank added that private banks do not have the wide networks needed to participate meaningfully in a deposit scheme of this nature. As such, private lenders such as RBL choose to focus on the payments part of the rural banking business.
"Through over 100,000 touch points that we have at local kirana stores across rural locations in India, we are aiding customers in payments and remittances, even if customers bank with others. This has been our rural strategy," said Ahuja.