Financial

Inclusion
Management of financial services
Financial inclusion includes one rank one pension, National Pension
scheme, Pradhan mantri jandhan yojana, pradhanmantri Suraksha bima
yojana, Pradhanmantri Jeevan bima yojana, and Payment Banking.

A
Report on
Financial Inclusion
Of
Management of Financial Services

In Partial Fulfillment of M.B.A Programme 2014-2016

Submitted on: 29th Sept., 2015 Submitted to: Prof.
Megha Shah
SUBMITEED BY
No

Name of Student

Roll No.

.
1.
2.
3.
4.
5.
6.

Khushboo Gulabani
Tushal Hareja
Ashik Khokhar
Nisha Prajapati
Vinay Shah
Mihir Tanna

NR
NR
NR
NR
NR
NR

14040
14043
14057
14112
14147
14162

N.R.Institute of Business Management

Affiliated To Gujarat Technological University
(GTU)

1 | Page

TABLE OF CONTENT
SR.
NO
1.
2.
3.
4.
5.
6.
7.
8.

PARTICULARS
INTRODUCTION OF FINANCIAL INCLUSION
ONE RANK ONE PENSION
ATAL PENSION YOJANA
PRADHANMANTRI JANDHAN YOJANA
PRADHANMANTRI SURAKSHA BIMA YOJANA
PRADHANMANTRI JEEVAN BIMA YOJANA
PAYMENT BANKING
CONCLUSION

INTRODUCTION
2 | Page

PAGE
NO.
03
07
10
14
18
20
21
26

Financial inclusion or inclusive financing is the delivery of financial services at affordable

costs to sections of disadvantaged and low-income segments of society, in contrast to
financial exclusion where those services are not available or affordable. An estimated 2
billion working-age adults globally have no access to the types of formal financial services
delivered by regulated financial institutions. For example in Sub-Saharan Africa only 24% of
adults have a bank account even though Africa's formal financial sector has grown in recent
years. It is argued that as banking services are in the nature of public good; the availability of
banking and payment services to the entire population without discrimination is the prime
objective of financial inclusion public policy.

The Alliance for Financial Inclusion

The Alliance for Financial Inclusion (AFI) is the world's largest and most prominent network
of financial inclusion policymakers from developing and emerging economies who work
together to increase access to appropriate financial services for the poor. AFI's core mission is
to adopt and expand effective inclusive financial policies in developing nations in an effort to
lift 2.5 billion impoverished, unbanked citizens out of poverty. AFI was founded in 2008 as a
Bill & Melinda Gates Foundation-funded project, supported by AusAid, in order to advance
the development of smart financial inclusion policy in developing and emerging countries.
The AFI Network has grown to more than 105 institutions from 88 member nations from
2008 to 2014.

Why Financial Inclusion in India is Important?

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The policy makers have been focusing on financial inclusion of Indian rural and semi-rural
areas primarily for three most important pressing needs:
1.

Creating a platform for inculcating the habit to save money The lower income

category has been living under the constant shadow of financial duress mainly because of the
absence of savings. The absence of savings makes them a vulnerable lot. Presence of banking
services and products aims to provide a critical tool to inculcate the habit to save. Capital
formation in the country is also expected to be boosted once financial inclusion measures
materialize, as people move away from traditional modes of parking their savings in land,
buildings, bullion, etc.
2.

Providing formal credit avenues So far the unbanked population has been vulnerably

dependent of informal channels of credit like family, friends and moneylenders. Availability
of adequate and transparent credit from formal banking channels shall allow the
entrepreneurial spirit of the masses to increase outputs and prosperity in the countryside. A
classic example of what easy and affordable availability of credit can do for the poor is the
micro-finance sector.
3.

Plug gaps and leaks in public subsidies and welfare programmes A considerable sum

of money that is meant for the poorest of poor does not actually reach them. While this
money meanders through large system of government bureaucracy much of it is widely
believed to leak and is unable to reach the intended parties. Government is therefore, pushing
for direct cash transfers to beneficiaries through their bank accounts rather than subsidizing
products and making cash payments. This laudable effort is expected to reduce governments
subsidy bill (as it shall save that part of the subsidy that is leaked) and provide relief only to
the real beneficiaries. All these efforts require an efficient and affordable banking system that
can reach out to all. Therefore, there has been a push for financial inclusion.

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Why

is financial

inclusion needed

in

India?

(A

Graphical

Representation )

What are the steps taken by RBI to support financial inclusion?

RBI set up the Khan Commission in 2004 to look into financial inclusion and the
recommendations of the commission were incorporated into the mid-term review of the
policy (200506) and urged banks to review their existing practices to align them with the
objective of financial inclusion.

RBI also exhorted the banks and stressed the need to

make available a basic banking 'no frills' account either with 'NIL' or very minimum balances
as well as charges that would make such accounts accessible to vast sections of the
population

Of the many schemes and Programmes pushed forward by RBI the following need special
mention.

5 | Page

A.

Initiation of no-frills account These accounts provide basic facilities of deposit and

withdrawal to accountholders makes banking affordable by cutting down on extra frills that
are no use for the lower section of the society. These accounts are expected to provide a lowcost mode to access bank accounts. RBI also eased KYC (Know Your customer) norms for
opening of such accounts.
B.

Banking service reaches homes through business correspondents The banking systems

have started to adopt the business correspondent mechanism to facilitate banking services in
those areas where banks are unable to open brick and mortar branches for cost considerations.
Business Correspondents provide affordability and easy accessibility to this unbanked
population. Armed with suitable technology, the business correspondents help in taking the
banks to the doorsteps of rural households.
C.

EBT Electronic Benefits Transfer To plug the leakages that are present in transfer of

payments through the various levels of bureaucracy, government has begun the procedure of
transferring payment directly to accounts of the beneficiaries. This human-less transfer of
payment is expected to provide better benefits and relief to the beneficiaries while reducing
governments cost of transfer and monitoring. Once the benefits starts to accrue to the
masses, those who remain unbanked shall start looking to enter the formal financial sector.

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1. OROP (ONE RANK ONE PENSION)

One Rank, One Pension (OROP), or same pension, for same rank and for the same length of
service, irrespective of the date of retirement, was the basis for determining the pension and
benefits of Indian Armed Forces till 1973.
In the run up to the Indian general election of 2014, OROP became a politicized issue. It was
an integral part of the election manifesto of many political parties including the INC and the
Bharatiya Janata Party (BJP) Both Sonia Gandhi of INC, and Narendra Modi of BJP, at
political rallies made repeated commitments to implement OROP, if elected.
On 15 June 2015, despairing of the Government intent to implement OROP, Ex-servicemen
Organizations launched nationwide protests, including hunger strikes.
On 14 August 2015, Independence Day eve, Rajnath Singh, the Home Minister of India,
authorized Delhi Police, to physically evict the ex-servicemen, wives of servicemen, many in
their eighties, from Jantar Mantar, the site of Ex-servicemen protests. A contingent of Delhi
Police, including some in camouflage dress, under the orders of BS Bassi, Commissioner of
Delhi Police, but apparently without proper supervision, roughly removed the protesters, and
damaged their tentage and equipment.

Financial Implications of OROP Implementation

Estimated Expenditure
The estimates of expenditure on account of OROP have undergone many revisions: according
to early MOD estimates OROP was expected to cost 3000 crores this figure has since been
questioned and revised. The current estimates vary between 8,000-9,000 crores. Finance
Ministry estimates for implementation of OROP in accordance with the accepted Koshiyari
definition, according to media reports in August 2015, were about 12000 crores, ie, about
4000 crores more than estimated earlier.

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Affordability of OROP
Close examination of the financial implications of OROP by experts reveals OROP is
affordable, and that opposition to it is based on 'specious' grounds.
The estimated expenditure on OROP is a small fraction of the military pension budget
of 54,500 crores (201516), which includes about 4, 00,000 defense civilians. Defence
civilians, which includes the entire civilian bureaucracy in the Ministry of Defence, retire at
60, are mostly based permanently in Delhi, and are, not be covered by OROP.
The question is whether a review every 3 years or every 5 years is acceptable, or will it too be
ruinous? After all, if the striking veterans agree to a 5-year review, and they well might, the
government will have no option but to accept it now.
Important points for OROP:
1. OROP will be implicated from July-2014.
2. OROP terms will be reformed every 5 years.
3. Widows will be given the same amount of pension as retired army men.
What was the problem, & what will be the solution?
Every soldier who retires got pension. But right now the arrangement is that the soldiers who
got retirement before few years, they get less pension in comparison to the soldiers who got
retirement recently.
For example:
Army person retired in 1995 gets 30,350 as a pension, but the army person retired in 2006
with same rank (colonel) gets 38,500 as a pension.so the OROP means the army person who
retires on the same rank should get same pension.
The second thing is that soldier who retired in 2010 gets more pension than a colonel who
retired in 1995.
Retired army person are on a hunger strike by demanding the same pension to the same rank
army person whether he got retirement in 2000 or 2015.
From 1973, this controversy of pension to the retired army persons had started. Now after
declaration of OROP, 6 lakhs widows will get benefit of this.
UPA govt. has announced 500 crores for OROP during their government, but later on Mr.
Arun Jatley in NDA government has announced 1000 crores for OROP.
8 | Page

But in reality it is about 10,000 crores expenditure for the central government. It is not a
onetime expense for the central government, in coming years also government has to bare the
expenditure of this scheme.
For Example,
It is but obvious that the army men who will retire in 2016 will get more
pension than who retired already in 2014, so by application of OROP, government will have
to revise the pension every year, but government wants to revise pension every 5 years, and
army person wants to revise it every year so we can imagine what will be the expenditure if it
is revised every year.
So finally government will have to bare a huge expenditure by announcing OROP.

2. NATIONAL PENSION SCHEME

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What is Atal Pension Yojana?

Atal Pension Yojana (APY), 1 a pension scheme for citizens of India focussed on the
unorganised sector workers. Under the APY, guaranteed minimum pension of Rs. 1,000/-,
2,000/-, 3,000/-, 4,000 and 5,000/- per month will be given at the age of 60 years depending
on the contributions by the subscribers.
The Government announced the introduction of universal social security schemes in the
Insurance and Pension sectors for all Indians, specially the poor and the under-privileged, in
the Budget for the year 2015-16. Therefore, it has been announced that the Government will
launch the Atal Pension Yojana (APY), which will provide a defined pension, depending on
the contribution, and its period. The APY will be focussed on all citizens in the unorganised
sector, who join the National Pension System (NPS) administered by the Pension Fund
Regulatory and Development Authority (PFRDA). Under the APY, the subscribers would
receive the fixed minimum pension of Rs. 1000 per month, Rs. 2000 per month, Rs. 3000 per
month, Rs. 4000 per month, Rs. 5000 per month, at the age of 60 years, depending on their
contributions, which itself would be based on the age of joining the APY. The minimum age
of joining APY is 18 years and maximum age is 40 years. Therefore, minimum period of
contribution by any subscriber under APY would be 20 years or more. The benefit of fixed
minimum pension would be guaranteed by the Government. The APY would be introduced
from 1st June, 2015.

Who can subscribe to APY?

Any Citizen of India can join APY scheme. The following are the eligibility criteria,
I the age of the subscriber should be between 18 - 40 years.
Ii He / She should have a savings bank account/ open a savings bank account.
Iii The prospective applicant should be in possession of mobile number and its details are to
be furnished to the bank during registration.
Government co-contribution is available for 5 years, i.e., from 2015-16 to 2019-20 for the
subscribers who join the scheme during the period from 1st June, 2015 to 31st December,
2015 and who are not covered by any Statutory Social Security Schemes and are not income
tax payers.
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How much pension will be received under APY?

Guaranteed minimum pension of Rs 1,000/-, 2,000/-, 3,000/-, 4,000 and 5,000/- per month
will be given at the age of 60 years depending on the contributions by the subscribers.

What is the benefit in joining APY scheme?

In APY, Government will co-contribute 50% of the total contribution or Rs. 1,000/- per
annum, whichever is lower, to the eligible APY account holders who join the scheme during
the period 1st June, 2015 to 31st December, 2015. The Government co-contribution will be
given for 5 years from FY 2015-16 to 2019-20.

What is the procedure for opening APY Account?

i Approach the bank branch where individuals savings bank account is held.
ii Fill up the APY registration form.
iii Provide Aadhaar/Mobile Number.
iv Ensure keeping the required balance in the savings bank account for transfer of monthly
contribution.

What will happen if required or sufficient amount is not maintained in the

savings bank account for contribution on the due date?
Non-maintenance of required balance in the savings bank account for contribution on the
specified date will be considered as default. Banks are required to collect additional amount
for delayed payments, such amount will vary from minimum Re 1 per month to Rs 10/- per
month as shown below:
i. Re. 1 per month for contribution up to Rs. 100 per month.
ii. Re. 2 per month for contribution up to Rs. 101 to 500/- per month.
iii. Re 5 per month for contribution between Rs 501/- to 1000/- per month.
iv. Rs 10 per month for contribution beyond Rs 1001/- per month.
Table of contribution levels, fixed monthly pension of Rs. 1,000 per month to
subscribers and his spouse and return of corpus to nominees of subscribers and the
contribution period under Atal Pension Yojana:
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Age of Joining

18
20
25
30
35
40

Years
of Indicative
Contribution
Monthly
Contribution
(in Rs.)

42
40
35
30
25
20

42
50
76
116
181
291

Monthly
Indicative
Pension to the Return
subscribers and Corpus to
his spouse (in nominee of
Rs.)
subscribers
Rs.)
1,000
1.7 Lakh
1,000
1.7 Lakh
1,000
1.7 Lakh
1,000
1.7 Lakh
1,000
1.7 Lakh
1,000
1.7 Lakh

of
the
the
(in

Fixed monthly pension of Rs. 2,000:

Age of Joining

Years
of Indicative
Contribution
Monthly
Contribution
(in Rs.)

18
20
25
30
35
40

42
40
35
30
25
20

84
100
151
231
362
582

Monthly
Indicative Return
Pension to the of Corpus to the
subscribers and nominee of the
his spouse (in subscribers (in
Rs.)
Rs.)
2,000
3.4 lakh
2,000
3.4 lakh
2,000
3.4 lakh
2,000
3.4 lakh
2,000
3.4 lakh
2,000
3.4 lakh

fixed monthly pension of Rs. 3,000 per month:

Age of Joining

Years
of Indicative
Contribution
Monthly
Contribution
(in Rs.)

18
42
126
20
40
150
25
35
226
30
30
347
35
25
543
40
20
873
Fixed monthly pension of Rs. 4,000 per month:

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Monthly Pension
to the subscribers
and his spouse (in
Rs.)

Indicative Return
of Corpus to the
nominee of the
subscribers
(in
Rs.)

3,000
3,000
3,000
3,000
3,000
3,000

5.1 Lakh
5.1 Lakh
5.1 Lakh
5.1 Lakh
5.1 Lakh
5.1 Lakh

Age of Joining

Years
of Indicative
Contribution
Monthly
Contribution
(in Rs.)

Monthly Pension
to the subscribers
and his spouse (in
Rs.)

Indicative Return
of Corpus to the
nominee of the
subscribers
(in
Rs.)

18
20
25
30
35
40

42
40
35
30
25
20

4,000
4,000
4,000
4,000
4,000
4,000

6.8 Lakh
6.8 Lakh
6.8 Lakh
6.8 Lakh
6.8 Lakh
6.8 Lakh

168
198
301
462
722
1164

Fixed monthly pension of Rs. 5,000 per month:

Age of Joining

18
20
25
30
35
40

Years
of Indicative
Contribution
Monthly
Contribution
(in Rs.)

42
40
35
30
25
20

210
248
376
577
902
1,454

Monthly
Indicative
Pension to the Return
subscribers and Corpus to
his spouse (in nominee of
Rs.)
subscribers
Rs.)
5,000
8.5 Lakh
5,000
8.5 Lakh
5,000
8.5 Lakh
5,000
8.5 Lakh
5,000
8.5 Lakh
5,000
8.5 Lakh

JANDHAN YOJANA
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of
the
the
(in

Introduction:
Pradhan Mantri Jan-Dhan Yojana (PMJDY) is National Mission for Financial Inclusion to
ensure access to financial services, namely, Banking/ Savings & Deposit Accounts,
Remittance, Credit, Insurance, Pension in an affordable manner.
Account can be opened in any bank branch or Business Correspondent (Bank Mitr) outlet.
PMJDY accounts are being opened with Zero balance. However, if the account-holder wishes
to get Cheques book, he/she will have to fulfill minimum balance criteria.

Documents required opening an account under Pradhan Mantri Jan-Dhan Yojana

1. If Aadhaar Card/Aadhaar Number is available then no other documents is required. If
address has changed, then a self-certification of current address is sufficient.
2. If Aadhaar Card is not available, then any one of the following Officially Valid
Documents (OVD) is required: Voter ID Card, Driving License, PAN Card, Passport
& NREGA Card. If these documents also contain your address, it can serve both as
Proof of Identity and Address.
3. If a person does not have any of the officially valid documents mentioned above,
but it is categorized as low risk' by the banks, then he/she can open a bank account
by submitting any one of the following documents:
1. Identity Card with applicant's photograph issued by Central/State Government
Departments, Statutory/Regulatory Authorities, Public Sector Undertakings,
Scheduled Commercial Banks and Public Financial Institutions;
2. Letter issued by a gazette officer, with a duly attested photograph of the
person.
Special Benefits under PMJDY Scheme
a. Accidental insurance cover of Rs.1.00 lac
b. No minimum balance required.
c. Life insurance cover of Rs.30,000/14 | P a g e

d. Easy Transfer of money across India

e. Beneficiaries of Government Schemes will get Direct Benefit Transfer in these
accounts.
f. After satisfactory operation of the account for 6 months, an overdraft facility will be
permitted
g. Access to Pension, insurance products.
h. Accidental Insurance Cover, RuPay Debit Card must be used at least once in 45 days.
i. Overdraft facility up to Rs.5000/- is available in only one account per household,
preferably lady of the household.
Objective of "Pradhan Mantri Jan-Dhan Yojana (PMJDY)"
Is ensuring access to various financial services like availability of basic savings bank
account, access to need based credit, remittances facility, insurance and pension to the
excluded sections i.e. weaker sections & low income groups. This deep penetration at
affordable cost is possible only with effective use of technology.
PMJDY is a National Mission on Financial Inclusion encompassing an integrated approach
to bring about comprehensive financial inclusion of all the households in the country. The
plan envisages universal access to banking facilities with at least one basic banking account
for every household, financial literacy, access to credit, insurance and pension facility. In
addition, the beneficiaries would get RuPay Debit card having inbuilt accident insurance
covers of 1 lakh. The plan also envisages channeling all Government benefits (from
Centre / State / Local Body) to the beneficiarys accounts and pushing the Direct Benefits
Transfer (DBT) scheme of the Union Government. The technological issues like poor
connectivity, on-line transactions will be addressed. Mobile transactions through telecom
operators and their established centers as Cash Out Points are also planned to be used for
Financial Inclusion under the Scheme. Also an effort is being made to reach out to the youth
of this country to participate in this Mission Mode Programme.

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PradhanMantriJanDhan Yojana
(Accounts Opened as on 09.09.2015)
Sr.No

No Of Accounts

No
Of Balance In % of Zero
Rupay
Accounts
Balance
(In Rupees Accounts
Rural Urba
Total Debit
Cards
Crores)
n
Under the scheme, even NBFCs and finance companies are allowed to function. In addition

to
the Sector
earlier Bank
scheme of
Zero balance
account,
interest on deposits
and easy
credit, this
Public
7.82
6.39
14.22 12.88
18626.71
42.90

scheme has many new features.

Rural Regional Bank 2.78
0.47
3.26
2.40
3956.66
44.17
Likely Problems and Ambiguities with the scheme and how can they be dealt with?

Private
Banks
0.42
0.28
0.71
0.63
1116.47
42.25
1.
People
may open multiple
accounts
using different
ID proofs
on the lure
of getting
insurance covers. It was said that on the first day itself, 1.5crore accounts were opened.
Total
11.03 7.15
18.18 15.91
23699.84
43.12
However, many of the account holders already have a bank account.

Disclaimer:
Information
is based
upon
the data
submitted
by different
2. Another
problem
that can
creep
in isas
that
people may
be takingbanks/SLBCs
benefit of the same scheme
under different accounts. This is possible especially when the customer uses different mode
of self-verification, like, Adhaar Card to verify one account, election to verify another.
Therefore, again, monitoring will play a key role to avoid such a loophole of the scheme.
3. Infrastructure is also a big issue for efficient operation of the scheme. If a bank is being set
up, it must be set up at a place with road connectivity and must be situated at the heart of the
villages and towns, especially at areas where trade happens. This is because, for a bank to
function for a longer period, other than the objectives of financial inclusion, it is necessary
that the bank also fulfills its other purposes such that it is viable as well as profitable to
operate in a given area.
4. Infrastructure also leads to problem of internet connectivity particularly in hilly and tribal
areas. For a successful launch of scheme, the speed of internet should also be faster.
5. Till June 6 2014, apart from one no other private sector bank was issuing a RuPay card.
The private sector banks have long term contracts with Visa and Master cards. ICICI Bank

16 | P a g e

started issuing RuPay card for the said scheme. In order to avail insurance cover, RuPay card
to be issued is a must. So, how is the private sector going to contribute such that the objective
of financial inclusion is reached faster? The government should look into the matter.
6. Even if it is a zero balance account, credibility of the account holder has to be checked.
The Overdraft facility to the account holder may turn into a sub-standard or Non- Performing
Asset for the banker. Thus, credit should be made available by the banker only after due
diligence and not by just going by the scheme.
7. Also, otherwise too, the private sector banks have limited branches in the rural India. Many
of the private sector banks like ICICI Bank (Though having the highest no. of rural branches
among the private sector banks) are investing indirectly in the rural markets through Micro
Finance Institutions. As there is no direct investment, the growth potential of the rural areas is
still to be unlocked. If the private sector also contributes to the goal of 100% financial
inclusion, the growth will be faster and it would fulfill the vision as seen by Honorable PM
Narendra Modi, i.e., of Sabka Saath, Sabka Vikas!
8. The financial literacy center is to be held by the banker so as to keep customer aware of the
services available and when and how to use them and to keep them updated of the new
financial products available to her/him. At the first financial literacy campaign, there should
be compulsory attendance for all those whom the banker feels should attend the programme.
These classes taken by the banker should be held frequently.
These are some problems that are loopholes in this scheme, but if it is handled
with care than PMJDY will be the best scheme for Financial inclusion in Indian history.

PRADHANMANTRI SURAKHSHA BIMA YOJANA

Pradhan Mantri Suraksha Bima Yojana (PMSBY) Government through the Budget Speech
2015 announced three ambitious Social Security Schemes pertaining to the Insurance and
Pension Sectors, namely Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan
Mantri Suraksha Bima Yojana (PMSBY) and an the Atal Pension Yojana (APY) to move

17 | P a g e

towards creating a universal social security system, targeted especially for the poor and the
under-privileged.
In light of the fact that a large proportion of the population have no accidental insurance
cover, the Pradhan Mantri Suraksha Bima Yojana (PMJJBY) is aimed at covering the
uncovered population at an highly affordable premium of just Rs.12 per year. The Scheme
will be available to people in the age group 18 to 70 years with a savings bank account who
give their consent to join and enable auto-debit on or before 31st May for the coverage period
1st June to 31st May on an annual renewal basis. Under the said scheme, risk coverage
available will be Rs. 2 lakh for accidental death and permanent total disability and Rs. 1 lakh
for permanent partial disability, for a one year period stretching from 1st June to 31st May. It
is offered by Public Sector General Insurance Companies or any other General Insurance
Company who are willing to offer the product on similar terms with necessary approvals and
tie up with banks for this purpose.
Between the date of commencement of enrolment on 01st May till the date of launch of the
scheme by the PM on 9th May, 4.42 Crores subscribers were enrolled in the PMJJBY
scheme.
Till 18th June 2015 the number of enrolled under PMSBY stands at 7.68 Crores. The scheme
is expected to serve the goal of financial inclusion by achieving penetration of insurance
down to the weaker sections of the society, ensuring their or their familys financial security,
which otherwise gets pulled to the ground in case of any unexpected and unfortunate
accident.
Criticism
The banks have complained that revenue received will be very low. Some bankers have
claimed that amount they are receiving is not sufficient to cover the service costs.

Mode of payment of premium

The premium amount will be deducted from the account holders savings bank account
through auto debit facility in one installment for the entire year, as per the option to be given
on enrolment. Members may also give one-time mandate for auto-debit every year till the

18 | P a g e

scheme is in force, subject to re-calibration that may be deemed necessary on review of

experience of the scheme from year to year
Termination of benefit cover
In following cases the cover will be terminated and no benefit will be payable to the
subscribers.
1) On attaining age 70 years or the age nearest birth day 2) At the time of renewal in
subsequent years, due to insufficiency of balance to keep the insurance in force the account
gets closed. 3) In case a subscriber is covered by more than one account and premium is paid
by the subscriber intentionally, insurance cover will be restricted to one only and the
premium shall be liable to be forfeited. 4) If the insurance cover is ceased due to any
technical reasons such as insufficient balance on due date or due to any administrative issues,
the same can be reinstated on receipt of full annual premium, subject to conditions that are to
be issued in future.

PRADHANMANTRI JEEVANJYOTI BIMA YOJANA

Pradhan Mantri Jeevan Jyoti Bima Yojana is a government-backed Life insurance scheme in
India. It was originally mentioned in the 2015 Budget speech by Finance Minister Arun Jatley
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in February 2015. It was formally launched by Prime Minister Narendra Modi on 9 May in
Kolkata. As of May 2015, only 20% of India's population has any kind of insurance, this
scheme aims to increase the number.
Overview
Pradhan Mantri Jeevan Jyoti Bima Yojana is available to people between 18 and 50 years of
age with bank accounts. It has an annual premium of 330 excluding service tax, which is
above 14% of the premium. The amount will be automatically debited from the account. In
case of death due to any cause, the payment to the nominee will be 200,000.
This scheme will be linked to the bank accounts opened under the Pradhan Mantri Jan Dhan
Yojana scheme. Most of these account had zero balance initially. The government aims to
reduce the number of such zero balance accounts by using this and related schemes.
Criticism
The banks have complained that revenue received will be very low. Some bankers have
claimed that amount they are receiving is not sufficient to cover the service costs. Since, this
a group insurance scheme, banks have not received instruction regarding cases where
excessive claims are in a year. Insurers have also pointed out that no health certificate or
information of pre-existing disease is required for joining.

PAYMENT BANKING
Definition-

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A payments bank is a type of non-full service niche bank in India. A bank licensed as a
payments bank can only receive deposits and provide remittances. It cannot carry out lending
activities. This type of bank was created to help India reach its financial inclusion targets.
This type of bank is targeted at migrant laborers, low income households, small businesses,
and other unorganized sector entities.
The Need for Payment Banks erupted because India has around 94 crores mobile subscribers
which is approx. 75% of the population of 125 crores but if we see the number of bank
accounts this figure comes down to 60 crores that is around 50% of the population. Most of
the unbanked people lives in the rural area and are poor people or small businessman.
RBI in its guidelines says the objectives of setting up of payments banks will be to further
financial inclusion by providing (i) small savings accounts and (ii) payments/remittance
services to migrant labour workforce, low income households, small businesses, other
unorganised sector entities and other users.
On 19 August 2015, RBI gave "in-principle" licenses to following eleven entities to launch
payments banks:-

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Aditya Birla Nuvo

Airtel M Commerce Services

Cholamandalam Distribution Services

Department of Posts

FINO PayTech

National Securities Depository

Reliance Industries

Dilip Shanghvi, (founder of Sun Pharmaceuticals)

Vijay Shekhar Sharma, (CEO of Paytm)

10

Tech Mahindra

11

Vodafone M-Pesa

Features of Payment Banks

1

Payments Banks can accept demand deposits (only current account and savings
accounts) with a ceiling limit of Rs.1 lakh per customer.

Payment Banks will pay interest at the rate notified by the RBI.

Payment Banks can issue Debit Cards but not credit cards.

Payment Banks cannot engage in lending services i.e. they cannot give loans, thus
phasing out the fear of NPA.

The Deposit up to Rs.1 lakh is insured by the DICGC (Deposit Insurance and Credit
Guarantee Corporation), same as in bank accounts.

Payment Banks will charge a fee as commission. This will be the sole earning for the
banks.

Payment bank will also have to maintain CRR (Cash reserve ratio) just like other
Scheduled commercial banks (SBI, PNB, BoB, Dena, ICICI etc.).

Payment Banks Structure

1

RBI in its draft guidelines has stipulated the minimum equity capital of Rs.100 crores
and minimum capital adequacy of 15%.

The leverage ratio shall not be less than 5% i.e. liabilities should not exceeds 20 times
of its net worth.

Promoters holding shall not be less than 40% for the first five years and 30% for the
10 years and 26% for the 12 years from the commencement of the business of the
payment banks.

Commercial Banks could have Payment Banks as their subsidiary.

Whether New Payment Banks Can prove to be Disrupters for Existing

Banks:
Some believe that these banks will prove as disrupters to the existing PS and private banks.
However, RBI Governor is of the view that these banks would complement rather than
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compete; as he pointed out, universal banks can do everything that a payments bank can, but
the reverse is not true. Thus, the existing PS and private banks will have to introduce some
changes in their technology platforms so as to provide similar facilities to their customers.
Undoubtedly the new payment banks are likely to increase competition for PS Banks and
private sector banks. However, as these new banks will be catering to the needs of people
who have limited funds at their disposal, PS banks, with much more resources available, can
focus on high net worth clients.
One of the interesting parts is that RBI has given licences for 11 payment banks, which
includes names like Airtel, Vodafone and Idea, which are mobile service providers and thus
already have a customer base of over 580 million potential customers. They have also
already in placed the mobile technology which can really change the scenario. Thus, biggest
threat to PS Banks will be coming from these mobile service providers, as they already have
grounds prepared for them.

How These Payment Banks Will Survive, when they cannot lend? :
The questions are being raised as to how these new banks will be able to survive in absence
of income from lending. However, we are forgetting that most of the new players are already
well established in their fields. These payments banks are expected to play on volumes as
they are likely to romp in to their fold millions of customers who are currently not within the
fold of the formal financial system. This would lead to large volumes of transactions fetching
the payments banks fees - a charge of even 1 or 2 per cent on a large volume can be lucrative
on normal cash transfers, which will include governments direct benefits transfer
programmes. Moreover, new payments banks can also earn 7.0% or so on their investments
in government securities. The mobile companies will have limited additional costs and thus
they may even offer payment of more than 4% interest, which is the norm among banks as
they pay mere 4% on savings banks. With no need for any provisions for losses on NPAs for
these payment banks, they may become fitter banks than existing banks.

REVOLUTION IN THE BANKING SECTOR

The reasons why payment banking will revolutionise money movement are many. Consider
the areas they will touch, and how their mere presence will impact everyone.

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First, and foremost, payment banks will bridge the last mile between bank branches and the
remote customer living in a rural hamlet. Payment banks will essentially rely on technology
to reach payment services to all customers, using mobiles as the vehicle of banking. Mobiles
go even where humans dont. Physical bank branches (or bankers or ATMs) will still be
needed for some functions - opening an account, depositing cash, etc - but all day-to-day
payments, including peer-to-peer payments) can be done remotely. The mobile phone will
become the virtual ATM and small-payments cheque-book. In less than 10 years, every
Indian will have a bank account. Payment banks are the key enablers.
Second, banking costs will come down due to intense competition driven by the expected
proliferation of payment banks. Currently, we pay much for banking services, whether it is
above-limit ATM transactions, additional cheque-books, big money transfers, maintenance of
minimum balances, or draft issuance fees. These costs will come down as payment banks
start offering zero-balance accounts and low-cost services. Currently, efficient private banks
like HDFC Bank, ICICI Bank and Axis Bank make huge profits from their low-cost current
and savings bank accounts, but a big chunk of this will move to payment banks, who may
offer higher savings bank rates of 5-7 percent. The HDFCs mint money since they only have
to compete with slothful public sector banks. Now, they will have nimbler rivals to worry
about. The customer will finally be Queen.
Third, the public sector banks are sitting ducks for bankruptcy and taxpayer bailouts if they
do not change. Between then, efficient payment and private sector banks will take away their
lucrative businesses and prized customers, as they will be both well capitalised and efficient.
The government should privatise the weaker banks quickly if it is not to be stuck with feeding
white elephants permanently. It cant cope with one Air India; if it does not privatise, it will
have several Air Indias on its hands. The weaker public sector banks are dead ducks.
Fourth, the arrival of payment banks - including India Post - will transform social welfare
and subsidy schemes. Even if the Modi government does no other reform but this one,
government subsidy payments to the poor - whether for LPG, kerosene or even food and
fertiliser - can now be routed through regular and payment banks. India Post is already there
in places where banks aren't there (with over 1.5 lakh post offices), and tomorrow Airtel and
Vodafone and Idea (and Reliance Jio, when it enters mobile telephony later this year) will
reach customers through mobile-enabled payment systems. The holy triad of Jan Dhan nofrills bank accounts, Aadhaar IDs and mobile banking will enable direct payments to the
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poor, eliminating fake recipients, ensuring cash in zero-balance accounts, etc. Inclusive
banking and subsidy reforms are simply the biggest things to happen during the Modi
government, even though the seeds for this were planted by earlier governments. The
difference between State Bank and Airtel is simply this: both have over 200 million
customers, but Airtel can go where State Bank cannot with a branch.
Fifth, mobile banking will create the conditions for cash-less banking. This means, over time,
the mobile will perform the same role as credit and debit cards, obviating the need for too
many cash payments. Even ATM expansion can now be slowed down in cities, and focused
on distant villages or towns.
Sixth, we now have one additional tool to eliminate black money in large parts of the
financial system. A government that wants to eliminate black money - which the Modi
government says it wants to - can effectively ban cash transactions once a 95 percent mobile
and Jan Dhan penetration rate is achieved. India is close to reaching a mobile user base of one
billion, and Jan Dhan is said to have reached all households. The next target for Jan Dhan
should be universal adult coverage through mobile, payment banking. It is achievable in five
to 10 years, with some public and private investment in financial literacy education and
empowerment of rural citizens, especially women.
Seventh, the government will be one of the biggest beneficiaries of payment banking, as
payment banks will expand its access to cheap funds. Currently, banks are the major investors
in government bonds. While this will remain so even with the entry of payment banks, the
sheer impact of additional money coming into payment bank accounts which can only invest
in short-term government bills of up to one year's maturity means short-term rates will come
down, and the government can borrow more cheaply.
Eighth, bank depositors can expect to earn higher short-terms deposit rates from payment
banks, and the old 4 percent savings bank norm will probably fade away.
After payment banks, the RBI will license small banks, which have to focus loans on small
borrowers and not big corporates. Once this happens, non-bank finance companies will
become "small banks" and make financial inclusion more complete from the small borrower's
point of view.

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Between them, payments banks and small banks will make Indian banking more competitive
and more inclusive on both the assets and liabilities sides that is, for both depositors and
borrowers. The era of the consumer is finally at hand.

CONCLUSION
Prime Minister Narendra Modi's push for financial inclusion has enabled India to earn the no.
1 rank in commitment to financial inclusion in the latest Brookings Institution's 2015
Financial and Digital Inclusion project report and scorecard.
According to the report, India accounts for 21 per cent of worlds and 67 per cent of South
Asia's unbanked population. "Current guidelines, such as those for payment banks, and the
overall JAM framework (Jan Dhan-Yojana, Aadhaar and Mobile numbers) are expected to
facilitate a more enabling environment for digital financial services by allowing a multiplicity
of providers to offer innovative financial services to underserved populations," the report
states. It notes the importance of recent government initiatives in helping India enhance its
access to formal banking services by the underserved population, remarkably. It goes on to
commend the prime minister's Pradhan Mantri Jan-Dhan Yojana -- one of the biggest
financial inclusion initiatives in the world
The initiative launched on August 28th, 2014 has already facilitated the opening of 185
million bank accounts as of September 2015. The report credited the government for its JAM
(Jan-Dhan, Aadhar and Mobile) framework which seeks to allow government to transfer
benefits

and subsidies

directly to the

bank accounts

of entitled

households.

The Reserve Bank of India's recent steps such as notification of guidelines for payment bank
services in November 2014 and more recently, the provision of payment bank licenses to 11
applicants, including five mobile operators are seen by the report to be major steps towards
making Indian financial services sector more open and inclusive, especially, for the
underserved population of the country.

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