NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, March 24, 2015

The Pradhan Mantri Jan Dhan Yojana (PMJDY) was envisioned to provide universal financial inclusion to rural and urban households. The mission includes not only providing universal banking access to all households but also micro-insurance. The government and commercial banks have accomplished the remarkable feat of opening 12.8 crore accounts within the last six months. While this is a laudable achievement, a number of issues related to servicing these accounts, mostly in remote and far-flung areas, may need to be addressed.

Nearly 60 per cent of these accounts are in rural areas, implying that considerable infrastructural efforts could be required in extending banking, given their remote locations. Further, nearly two-third of these have zero balance implying, among other reasons, either lack of financial literacy or willingness to bank, probably because of distance from the branch or lack of confidence in business correspondents (BC). Before the PMJDY, there were 82 crore savings accounts in commercial banks with an outstanding balance of ?18 lakh crore in 2013. The additional 12.5 crore accounts would add to the already substantial burden on branch banking by around 15 per cent.

Innovative solutions

To address the challenges from these new accounts, should commercial banks increase their staff by 15 per cent or employ more BCs?

A number of innovative solutions have been tried so far by different countries, including India, in terms of mobile banking which is currently one of the most widespread models followed in countries such as Kenya (M-Pesa) and Brazil. Another solution which has been tried, though in a limited way, is television banking (TVB).

TVB exploits television’s two-way communication property, associated with digitalisation and existing reach to provide banking services such as balance enquiry, teleshopping, account transfers, and so on. TVB has the potential to cater to a large subscriber base, educate people about the banking services/products and offer branchless banking services thereby promoting sustainable financial inclusion.

Countries such as China, the UK and Nordic nations have implemented TV banking. A recent report by the Asian Development Bank Institute makes this observation about the scale of growth in China: “…Chongqing-based Three Gorges Bank has worked with its area cable operator to deliver banking services via television… While this is a new service launched in early 2013…it will provide greater accessibility and more intuitive interfaces than personal computer banking, particularly for older urban clients.”