News / Economy

Modi to Launch Plan for Every Indian Household to Have Bank Account

FILE - An Indian woman buys vegetables at a road side stall in New Delhi, Aug. 20, 2014.
FILE - An Indian woman buys vegetables at a road side stall in New Delhi, Aug. 20, 2014.
Reuters

Prime Minister Narendra Modi will promise on Thursday to provide a bank account for every Indian household when he launches a major initiative that could save billions of dollars in welfare spending and help mend strained state finances.

India has grown to become Asia's third largest economy, but nearly two-fifths of its 1.27 billion people do not have a bank account. This leaves them dependent on moneylenders and other informal financing routes.

In a keynote speech this month, Modi made financial "inclusion" a top priority of his administration. He followed this up by writing 725,000 emails to bank officials urging them to support the initiative.

“There is an urgency to this exercise as all other development activities are hindered by this single disability,” he said in a Twitter post.

India's Prime Minister Narendra Modi takes his oath at the presidential palace in New Delhi May 26, 2014India's Prime Minister Narendra Modi takes his oath at the presidential palace in New Delhi May 26, 2014
x
India's Prime Minister Narendra Modi takes his oath at the presidential palace in New Delhi May 26, 2014
India's Prime Minister Narendra Modi takes his oath at the presidential palace in New Delhi May 26, 2014

Modi won India's biggest electoral mandate in 30 years in May with a promise to revive India's flagging economy. So far, he is yet to launch the big-bang reforms needed to break out of a cycle of low growth and high inflation.

Some commentators say his emphasis on the new banking and insurance program seeks to cement his support base among poor households with small savings. Over 40 percent of Indians live on less than one dollar a day.

The launch of the Jan Dhan Yojana, or the Scheme for People's Wealth, comes weeks after Modi blocked a global trade deal, saying it threatened the interests of poor farmers.

Under the banking scheme, account holders would get a debit card and accident insurance cover of up to 100,000 rupees ($1,654). They would also get an overdraft facility of up to 5,000 Indian rupees.

Benefits and challenges

By paying benefits directly into bank accounts, the scheme would seek to cut waste and corruption that inflate India's $43 billion subsidy bill, equivalent to more than 2 percent of its GDP, for handouts of grain, fuel and fertilizer.

The push for greater financial inclusion would also diminish the influence of money lenders and other informal financing channels who operate outside the ambit of the Reserve Bank of India (RBI), blunting its monetary policy tools.

While the drive for universal banking access is not new, the failure to provide services tailored for the poor and low-income groups has kept India way off its goal.

For example, many borrowers in the “unbanked” segment such as small-time traders need overnight loans of $25-30 that are not offered by commercial banks, making them turn to informal financing channels.

Puneet Chopra, associate director at a financial inclusion consulting firm MicroSave, said such a handicap could also trip up Modi's project.

“Without addressing the specific needs of the segment you are targeting, you cannot hope to have much success,” he said.

Modi's plan to provide an overdraft facility could also end up swelling bad loans at Indian banks as it does not spell out how the banks can collect debts.

“If there is no mechanism on the ground to collect repayments or to service the accounts, these are likely to turn dormant as soon as the overdraft is disbursed,” Chopra said.

“There is a high risk that the scheme leads to a massive dole-out of subsidies instead of assisting the targeted distribution of benefits,” he said.

Bad loans at Indian banks rose to 4.1 percent of gross advances in March from 2.4 percent in March three years ago, the RBI said in its annual report last week. Restructured loans, meanwhile, rose to 5.9 percent of gross advances in March from 2.5 percent in June 2011.

You May Like

DRC Tries Mega-Farms to Feed Population

Park at Boukanga Lonzo currently has 5,000 hectares under cultivation, crops stretching as far as eye can see, and is start of ambitious large-scale agriculture plan More

Video Survivor Video Testimonies Recount Horrors of Guatemalan Genocide

During a conflict that spanned more than three decades, tens of thousands of indigenous Mayans were killed More

Video War, Drought Threaten Iraq's Marshlands

Areas are spawning ground for Gulf fisheries, a resting place for migrating wildfowl, source of livelihood for fishermen and herders who have called the marshes home for generations More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Nobel Prize Winner Malala Talks to VOAi
X
August 31, 2015 2:17 AM
Nobel Peace Prize winner Malala Yousafzai met with VOA's Deewa service in Washington Sunday to talk about women’s rights and unveil a trailer for her new documentary. VOA's Katherine Gypson has more.
Video

Video Nobel Prize Winner Malala Talks to VOA

Nobel Peace Prize winner Malala Yousafzai met with VOA's Deewa service in Washington Sunday to talk about women’s rights and unveil a trailer for her new documentary. VOA's Katherine Gypson has more.
Video

Video War, Drought Threaten Iraq's Marshlands

Iraq's southern wetlands are in crisis. These areas are the spawning ground for Gulf fisheries, a resting place for migrating wildfowl, and source of livelihood for fishermen and herders. Faith Lapidus has more.
Video

Video Colombians Flee Venezuela as Border Crisis Escalates

Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Rebuilding New Orleans' Music Scene

Ten years after Hurricane Katrina inundated New Orleans, threatening to wash away its vibrant musical heritage along with its neighborhoods, the beat goes on. As Bronwyn Benito and Faith Lapidus report, a Musicians' Village is preserving the city's unique sound.
Video

Video In Russia, Auto Industry in Tailspin

Industry insiders say country relies too heavily on imports as inflation cuts too many consumers out of the market. Daniel Schearf has more from Moscow.
Video

Video Scientist Calls Use of Fetal Tissue in Medical Research Essential

An anti-abortion group responsible for secret recordings of workers at a women's health care organization claims the workers shown are offering baby parts for sale, a charge the organization strongly denies. While the selling of fetal tissue is against the law in the United States, abortion and the use of donated fetal tissue for medical research are both legal. VOA’s Julie Taboh reports.
Video

Video Next to Iran, Climate at Forefront of Obama Agenda

President Barack Obama this week announced new initiatives aimed at making it easier for Americans to access renewable energy sources such as solar and wind. Obama is not slowing down when it comes to pushing through climate change measures, an issue he says is the greatest threat to the country’s national security. VOA correspondent Aru Pande has more from the White House.
Video

Video Arctic Draws International Competition for Oil

A new geopolitical “Great Game” is underway in earth’s northernmost region, the Arctic, where Russia has claimed a large area for resource development and President Barack Obama recently approved Shell Oil Company’s test-drilling project in an area under U.S. control. Greg Flakus reports.
Video

Video Philippine Maritime Police: Chinese Fishermen a Threat to Country’s Security

China and the Philippines both claim maritime rights in the South China Sea.  That includes the right to fish in those waters. Jason Strother reports on how the Philippines is catching Chinese nationals it says are illegal poachers. He has the story from Palawan province.
Video

Video China's Spratly Island Building Said to Light Up the Night 'Like A City'

Southeast Asian countries claim China has illegally seized territory in the Spratly islands. It is especially a concern for a Philippine mayor who says Beijing is occupying parts of his municipality. Jason Strother reports from the capital of Palawan province, Puerto Princesa.
Video

Video Ages-old Ice Reveals Secrets of Climate Change

Ice caps don't just exist at the world's poles. There are also tropical ice caps, and the largest sits atop the Peruvian Andes - but it is melting, quickly, and may be gone within the next 20 years. George Putic reports scientists are now rushing to take samples to get at the valuable information about climate change locked in the ice.

VOA Blogs

World Currencies

EUR
USD
0.8916
JPY
USD
121.32
GBP
USD
0.6487
CAD
USD
1.3252
INR
USD
66.401

Rates may not be current.