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

    In Britain, The Sun Still Doesn’t Shine

    Invoking Spitfires and Merlin, Leave voters insist country can be great again, following surprising 'Brexit' vote last week

    Double Wave of Suicide Bombings Puts Lebanon, Refugees on Edge

    Following suicide bombings in Christian town of Al-Qaa, on Lebanon's northeast border with Syria, fears of further bombings have risen

    US Senators Warned on Zika After Failing to Pass Funding

    Zika threats and challenges, as well as issues of contraception and vaccines, spelled out as lawmakers point fingers

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Slow Rebuilding Amid Boko Haram Destruction in Nigeria’s Northeasti
    X
    June 29, 2016 6:15 PM
    Military operations have chased Boko Haram out of towns and cities in Nigeria’s northeast since early last year. But it is only recently that people have begun returning to their homes in Adamawa state, near the border with Cameroon, to try to rebuild their lives. For VOA, Chris Stein traveled to the area and has this report.
    Video

    Video Slow Rebuilding Amid Boko Haram Destruction in Nigeria’s Northeast

    Military operations have chased Boko Haram out of towns and cities in Nigeria’s northeast since early last year. But it is only recently that people have begun returning to their homes in Adamawa state, near the border with Cameroon, to try to rebuild their lives. For VOA, Chris Stein traveled to the area and has this report.
    Video

    Video Clinton Leads Trump, But Many Voters Don't Like Either

    In the U.S. presidential race, most recent polls show Democrat Hillary Clinton with a steady lead over Republican Donald Trump as both presumptive party nominees prepare for their party conventions next month. Trump’s disapproval ratings have risen in some recent surveys, but Clinton also suffers from high negative ratings, suggesting both candidates have a lot of work to do to improve their images before the November election. VOA National correspondent Jim Malone has more from Washington.
    Video

    Video New US Ambassador to Somalia Faces Heavy Challenges

    The new U.S. envoy to Somalia, who was sworn into office Monday, will be the first American ambassador to that nation in 25 years. He will take up his post as Somalia faces a number of crucial issues, including insecurity, an upcoming election, and the potential closure of the Dadaab refugee camp in Kenya. VOA’s Jill Craig asked Somalis living in Kenya’s capital city Nairobi how they feel about the U.S. finally installing a new ambassador.
    Video

    Video At National Zoo, Captivating Animal Sculptures Illustrate Tragedy of Ocean Pollution

    The National Zoo in Washington, D.C., is home to about 1,800 animals, representing 300 species. But throughout the summer, visitors can also see other kinds of creatures there. They are larger-than-life animal sculptures that speak volumes about a global issue — the massive plastic pollution in our oceans. VOA's June Soh takes us to the zoo's special exhibit, called Washed Ashore: Art to Save the Sea.
    Video

    Video Baghdad Bikers Defy War with a Roar

    Baghdad is a city of contradictions. War is a constant. Explosions and kidnappings are part of daily life. But the Iraqi capital remains a thriving city, even if a little beat up. VOA's Sharon Behn reports on how some in Baghdad are defying the stereotype of a nation at war by pursuing a lifestyle known for its iconic symbols of rebellion: motorbikes, leather jackets and roaring engines.
    Video

    Video Melting Pot of Immigrants Working to Restore US Capitol Dome

    The American Iron Works company is one of the firms working to renovate the iconic U.S. Capitol Dome. The company employs immigrants of many different cultural and national backgrounds. VOA’s Arman Tarjimanyan has more.
    Video

    Video Testing Bamboo as Building Material

    For thousands of years various species of bamboo - one of the world's most versatile plants - have been used for diverse purposes ranging from food and medicine to textiles and construction. But its use on a large scale is hampered because it's not manufactured to specific standards but grown in the ground. A University of Pittsburgh professor is on track to changing that. VOA’s George Putic reports.
    Video

    Video Orphanage in Iraqi City Houses Kids Who Lost their Parents to Attacks by IS

    An orphanage in Iraqi Kurdistan has become home to scores of Yazidi children who lost their parents after Islamic State militants took over Sinjar in Iraq’s Nineveh Province in 2014. Iraqi Kurdish forces backed by the U.S. airstrikes have since recaptured Sinjar but the need for the care provided by the orphanage continues. VOA’s Kawa Omar filed this report narrated by Rob Raffaele.
    Video

    Video Re-Opening Old Wounds in a Bullet-Riddled Cultural Landmark

    A cultural landmark before Lebanon’s civil war transformed it into a nest of snipers, Beirut’s ‘Yellow House’ is once again set to play a crucial role in the city.  Built in a neo-Ottoman style in the 1920s, in September it is set to be re-opened as a ‘memory museum’ - its bullet-riddled walls and bunkered positions overlooking the city’s notorious ‘Green Line’ maintained for posterity. John Owens reports from Beirut.
    Video

    Video Brexit Resounds in US Presidential Contest

    Britain’s decision to leave the European Union is resounding in America’s presidential race. As VOA’s Michael Bowman reports, Republican presumptive nominee Donald Trump sees Britain’s move as an affirmation of his campaign’s core messages, while Democrat Hillary Clinton sees the episode as further evidence that Trump is unfit to be president.
    Video

    Video NASA Juno Spacecraft, Nearing Jupiter, to Shed Light on Gas Giant

    After a five-year journey, the spacecraft Juno is nearing its destination, the giant planet Jupiter, where it will enter orbit and start sending data back July 4th. As Mike O'Sullivan reports from Pasadena, California, the craft will pierce the veil of Jupiter's dense cloud cover to reveal its mysteries.
    Video

    Video Orlando Shooting Changes Debate on Gun Control

    It’s been nearly two weeks since the largest mass shooting ever in the United States. Despite public calls for tighter gun control laws, Congress is at an impasse. Democratic lawmakers resorted to a 1960s civil rights tactic to portray their frustration. VOA’s Carolyn Presutti explains how the Orlando, Florida shooting is changing the debate.

    Special Report

    Adrift The Invisible African Diaspora

    World Currencies

    EUR
    USD
    0.9017
    JPY
    USD
    102.66
    GBP
    USD
    0.7443
    CAD
    USD
    1.2990
    INR
    USD
    67.600

    Rates may not be current.