Bank account penetration in India increased from 35% to 53% between 2011 and 2014, but the country also suffers from high dormancy rates, says a World Bank report.
Translated into absolute numbers, this growth in number of bank accounts means that 175 million in India became account holders between 2011 and 2014.
According to the World Bank, the rise in number of bank accounts was to a large extent due to government's push for financial inclusion.
In August 2014 the Indian government launched Pradhan Mantri Jan Dhan Yojana scheme for comprehensive financial inclusion with the goal of opening a bank account for every household.
"By the end of January 2015 it had led to the opening of 125 million new bank accounts; as a point of comparison, a 2013 survey had found that fewer than 400 million people in the country had an account," the report said.
Under the scheme more than 97% of the accounts were opened with the public banks, but around 72% of these accounts show 'zero balances'.
The World Bank report also noted that dormancy rate in India is quite high at 43% and accounts for about 195 million of the 460 million adults with a dormant account around the world.
In sharp contrast, in high income OECD economies the dormancy rate is as low as 5%.
Moreover, only 39% of all account holders in India own a debit or ATM card, and using an account might be inconvenient and time-consuming if every transaction requires using a bank teller.
In India not only account penetration is comparatively low, at 53%, but so is the use of accounts for payments - mere 15% of adults reported using an account to make or receive payments.
In Brazil and China about 40% of adults reported using an account to make of receive payments.
Meanwhile, most of the world's unbanked are in China, India and Indonesia.
The country is home to 21% of the world's unbanked adults and about two-thirds of South Asia's. China accounts for 12% and Indonesia 6%.
According to the report, globally, from 2011 and 2014, 700 million people became account holders at banks, other financial institutions, or mobile money service providers, and the number of 'unbanked' individuals dropped 20% to 2 billion adults.
Studies show that broader access to, and participation in, the financial system can boost job creation, increase investments in education, and directly help poor people manage risk and absorb financial shocks.
My Observation:
This refers to news item published today that number of dormant or zero balance accounts is highest in India .Similarly there is news that volume of bad assets is greater in public bank than private banks.
In India , employees work under pressure and work to please boss and hence they achieve the allotted target by hook or by crook sacrificing quality at every level. When bank officers are asked to achieve the target of opening of accounts to follow guidelines framed by Government of India for Financial Inclusion, they open the account rightly or wrongly to keep bosses in happy mood and to avoid transfers to critical places and to ensure promotion .
Bankers least bother of quality of work they perform, they are bothered of pleasure of their bosses. In private banks, staff work for the growth of organisation they are employed in, whereas in public banks staff work for growth of bosses , for pleasure of bosses and to grow relation with bosses so that their future brightens .
This is why more than 50 % of accounts are either zero balance accounts or dormant accounts. Target of opening of accounts is achieved but service quality extended by banks to customers do not improve. It is easy to bring new customers by marketing but it is difficult to sustain them without extending cheap, quick , humble and best services. This is why customers open account in public bank and after some time they switch over to private banks even if service charges in private banks are normally higher than that of public banks.
It is important to mention here that minimum cost of opening and handling a bank account comes to Rs.10 per year and hence if there are twenty crore dormant or zero balance accounts in public bank, it translates into a loss of Rs.200 crore per year. Similarly 30 to 40 percent of branches are economicallu unviable and causing huge erosion in bank,s profit.
Similarly bank officers sanction loans just to achieve the credit targets allotted to them by higher authorities. They sacrifice the quality to achieve the target and to ensure quick promotion . They indulge in corrupt practices just to keep bosses in happy mood. They sanction loan or recommend for sanction of loan facilities without caring for future of such credits if the same is advised by higher bosses on phone. Bank officers hide bad assets as long as they are not transferred or retired. No punitive action is taken against erring officials as long as guilty and corrupt officers have good relation with top officials and VIPs. This is why volume of stress assets is approaching 20 to 25 percent of total assets despite all claims made by top management that there is transparent and perfect process of lending .
I therefore feel that until there is blind and improper thrust on target, no on can dream of quality in public banks. Volume of dormant accounts and stressed assets will continue to rise and corrupt officers will continue to get quicker and quicker promotion. To add fuel to fire MOF have now advised to promote scale II or III officers on merit. But only God knows what merit means in the eyes of top bankers. Government of India is contemplating to give posting of ED and CMD to officer of 15 years experience only even if it comes from private banks. On the contrary , bank officer in scale I could not dream of becoming scale II officer even after serving 10 to 15 years before 1991 and during seventies and eighties.
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