PradhanMantri Jan-DhanYojana – a challenge for Payment Banks

Update Rana Gohil

PradhanMantri Jan-DhanYojana – 

a challenge for Payment Banks

Hi Friends, 

You can see PradhanMantri Jan-DhanYojana (PMJDY, 2015) launched earlier this year claims to have mobilized 18 crore savings accounts, with 11 crore from rural areas. PMJDY has been popularized as a National Mission for Financial Inclusion to ensure access to financial services, namely, Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner. 


Under this scheme account can be opened in any bank branch or Business Correspondent (Bank Mitr) outlet with a Zero balance. The account offers accidental insurance cover of Rs. One lac and life insurance cover of Rs.30,000. Beneficiaries of Government Schemes will get Direct Benefit Transfer in these accounts. After satisfactory operation of the account for 6 months, an overdraft facility will be permitted.

Since PMJDY has the backing of Government machinery and is being channelized through public sector banks, it is going to pose a tough challenge to deposit mobilization by Payment Banks. Though 11 crore rural accounts have been mobilized under this scheme, about half of these are inactive and with necessary push can offer big opportunity for the new players. Government plans to cover entire country under the scheme by March, 2016. But keeping all the accounts opened as part of scheme, as active accounts over a period is going to be significant challenge.

Other Challenges to Payment Banks


Profitability will be a huge challenge as Payment Banks will be working on thin margins. There will always be pressure of competition from similar other players and margin expansion will be a constant challenge.

Interest on Deposits

To attract deposits, interest rates matter. Those who offer higher interest rates will be more attractive to rural poor having smaller amounts to deposit. However, Payment Banks will find it difficult to offer higher interest rates as they are allowed to mainly invest only in Government securities.

Regulatory norms

Banking business always has been subject to strict regulatory provisions. The niche banks will not be excluded from it and they will have to balance their business models with the regulatory provisions that RBI may stipulate over time as the overall regulatory authority of banks in the country and in the interest of depositiors and public at large. It is also likely that some applicants particularly those operating payment systems may face dual regulation from RBI and Financial Authority.

Technological changes

New banks will have to constantly watch for new innovation in technological front by other players and be ready to adopt the same to meet competition and cost advantage.

Concept of Financial

Inclusion Over the years it has been experienced that financial inclusion can be achieved merely through deposit facilities to poor in far flung areas. Their economic condition warrants more than mere deposit facility which may be of no meaning if they have no cash to live on. In such case, they require some kind of cash loans and guidance window to start something for their livelihood. This aspect has been ignored in the scheme of Payment Banks, or may be other category of niche banks, recently announced after about a month of earlier announcement, in the form of Small Finance Banks, may fill the void.

Competition from existing commercial banks

The existing banks have already expressed being threatened by new entities for raising low cost deposits through their small rural branches. The advent of new payment banks with very low infrastructure cost and innovative technology driven business will compel the existing banks also to join the race and compete with payment banks, by gradually adopting same innovative products and services, for garnering deposits to sustain their remote branches set up for this purpose only. This is likely to put pressure on the business of new banks and threaten their sustainability



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