SBI recently announced that it will start charging penalty for non-maintenance of minimum balance in liability accounts. Apparently the SBI Chief justified the same in her remark “minimum balance penalty required to offset Jan Dhan costs”! Our estimates points to nearly 4000 crore annual costs for SBI to maintain its Jan Dhan set off accounts.
The above statement actually raises the question of cross subsidy! So is the bank trying to offset the losses in financial inclusion business from the profitable retail business? That would not be a surprise as most banks have been doing that as their priority sector lending or the financial inclusion business are not self sustaining. Now these businesses cannot be wished off as this comes under RBI regulatory framework. So the banks make up for their losses in those sectors from the profits they make in other business. This is the primary reason why the Nochekat Mor committee and later RBI promulgated the concept of niche bank. Small finance banks (which draw from MFI experience) are supposed to be more efficient in managing these sectors and have been granted license for banking (small finance banks). For SBI, there is a double whammy of large NPA portfolio. We discussed the NPA issue in great detail in our earlier article. Hence let us discuss the Jan Dhan issue in more details here.
SBI, being the largest public sector bank, had to take up the majority work in opening PMJDY accounts. Consider this, of the 27.84 Crore PMJDY accounts opened till Feb-17 end, 30% or 8.36 Crore accounts were opened by SBI alone. BUT there are significant variances in the account performance between SBI, private sector and PSB (w/o SBI).
- SBI has opened more such accounts in urban areas compared to other banks (PSB & Pvt). Possibly that’s why RUPAY issuance %age is much higher than others
- SBI zero balance account %age (32%) is significantly higher than the combined %age of other PSBs (19.6%) but interestingly is slightly lower than Pvt sector banks
- SBI average balance in non zero PMJDY account is only 50% of the private or PSB banks.
Now what is the expected loss from each such account? We don’t have an exact answer to this but we can try & build some assumptions for the same. As per the news reports, minimum balance requirement per month is 1000 for rural, 3000 in semi urban and 5000 in urban. Similarly the penalty charges are in the range off 20-100 Rs.
- Considering that 55% PMJDY is urban account (Urban+ semi urban) for SBI, the weighted expected minimum average balance requirement comes out to be INR 2650. (55% X 4000 (avg of 3000 & 5000) + 45% X 1000). Hence SBI with 1860.8 average balance, is well below the cut-off
- The difference between weighted average (2650) and SBI average balance of PMJDY (non zero) accounts (1860) is around 790, which is at 70% of the MAB (Minimum Balance Required). Hence the applicable penalty will be of the lower bracket. Let us assume that as 30 INR/ month
- For zero balance accounts, the cost will be assumed at INR 60/ month only
- Let us assume that this penalty charge of 60/ 30 (as applicable) is just enough for SBI to offset its expenses towards maintain an account
- Hence we can safely arrive at a loss of nearly 4000 crore annually for PMDJY accounts (~ 2.7 Cr Zero Bal X 60 X 12 months + 5.7 Cr non Zero Bal X 30 X 12 months)
- At 4000 crore, the impact to SBI Overall Income is around 4.7% (at FY16 figures)
- Consider the above against the FY16 write-off figures of 15763 crores INR
Probably this rough estimate gives an idea on the extent of bleeding the bank is going through. It is dealing with huge NPA and as well as month of month operational cost of maintaining the Jan Dhan accounts.
Still though as a commoner we are perplexed as why we should be paying for those inefficiencies/ challenges. We bear the cost of cash through the taxes we pay and now we have to bear the cost of Governmental / banks inefficiencies as well?
Progress report, Zero Balance Trend report and the Archive reports in https://www.pmjdy.gov.in/