Published in Mint on May 25 2015
The government has increased the focus on providing access to various financial services. It has launched the Jan Dhan bank accounts for financial inclusion, followed by three other schemes. It also introduced a small savings product for the girl child. Here’s a look at what these schemes offer.
Jan Dhan account
Under the Pradhan Mantri Jan Dhan Yojana, banks opened 149.9 million accounts till 15 April in just nine months, according to data on the scheme’s website. You can open an account in any bank branch or business correspondent outlet. This is a basic savings bank account and doesn’t need a minimum balance. Most banks offer 4% interest and a maximum of four cash withdrawals in a month. You also get a RuPay debit card, which comes with free accident insurance of Rs.1 lakh. But to activate the policy, the card has to be used at least once in 45 days. The cover is available only on one account. An overdraft facility of up to Rs.5,000 is available to one account holder per household after six months. Interest will be the base rate plus 2%, or 12%, whichever is lower. Beneficiaries of government schemes can get cash transfers directly to these accounts. You can also open a joint account.
Pradhan Mantri Jeevan Jyoti Bima Yojana
This is a pure term plan with a sum assured of Rs.2 lakh, and annual coverage from 1 June to 31 May, renewable yearly. The premium is Rs.330, irrespective of age. Anyone between 18 and 50 years can opt for it, though the cover is applicable till a person turns 55, or till the account is active. You need to have an account with a Jan Dhan Yojana participating bank. One person can have only one policy. “The biggest advantage is that the premium is the same across all ages groups. Otherwise, someone in the age band of 35-40 years would pay about Rs.200 and someone who is 50, would pay Rs.1,000,” said Kapil Mehta, executive director, SecureNow Insurance Brokers Pvt. Ltd.
Based on the subsidized premiums, insurers are hoping for scale to make the pricing viable. “We may not make any money, but this scheme gives an opportunity to utilize bank branches to sell insurance and energize even the inactive branches,” said Arijit Basu, chief executive officer and managing director, SBI Life Insurance Co. Ltd, which had sourced about 2.3 million policies as of 9 May.
But the real test will be claims. “This policy is not underwritten for each individual and premiums are flat. Rejection may not be due to misinformation, but policyholders’ nominees don’t realize they can make a claim,” said Mehta.
Pradhan Mantri Suraksha Bima Yojana
This is a personal accident insurance with a sum assured of Rs.2 lakh at a yearly premium of Rs.12. Claim is payable on accidental death, permanent total disability or permanent partial disability. Anyone aged 18-70 years and with a bank account in a participating bank can opt for it. Cover is provided annually (1 June to 31 May), and is renewable up to 70 years of age or till closure of the bank account. Again, one policy per person. This is a subsidized product; a similar plan would cost at least Rs.100 in premium.
Atal Pension Yojana
This is a defined benefit pension scheme that offers fixed pension based on age-related contributions. You can choose pension of Rs.1,000-5,000 a month, which you will get from the age of 60. So, a 30-year-old who wants a pension of Rs.5,000 has to contribute Rs.577 monthly (or Rs.6,924 a year) for 30 years. For the first five years, the government will put in 50% of your contribution or Rs.1,000, whichever is lower. If you are part of a statutory social security scheme, there won’t be co-contribution.
Those in the age group of 18-40 years can enrol. You need to have a bank account. Nomination is mandatory, because in case of death, the spouse gets the pension, and if both pass away, it will go to the nominee.
This scheme has received mixed responses. “As the scheme is linked to bank accounts, it will encourage people to open accounts and also ensure security. But it also requires people to pay regularly, else the pension account will freeze. Given that many Jan Dhan accounts still have zero balance, and many people have irregular income, such long-term commitment may be difficult,” said Gautam Bhardwaj, co-founder of the non-profit Micro-Pension Foundation. Also, a monthly pension of Rs.5,000 isn’t substantial.
Sukanya Samriddhi account
An account under this small savings scheme can be opened for a minor girl child younger than 10 years. Only parents or legal guardians are allowed to open the account. You can open only one account in one child’s name. Initial deposit is Rs.1,000, and thereafter, in multiples of Rs.100 but the total cannot exceed Rs.1.5 lakh in a financial year. Deposits can be made for 14 years from date of opening. “It gives you tax benefit, and returns are better than what Public Provident Fund gives, as of now (9.2% versus 8.7%),” said Suresh Sadagopan, a Mumbai-based financial planner. The interest rate will be reset every year.