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"If we want to eradicate poverty, we need to get rid of financial untouchability," the PM said today. He had announced the campaign in his Independence Day speech to the nation, stressing the importance of financial inclusion.
The PM urged state-owned banks in a recent letter to "try your best to ensure that no one is left without a bank account." Nearly two-fifths of the population does not have a bank account.
1.5 crore accounts are being opened on the first day. 7.5 crore people will be covered by the scheme by January 25, 2015, said Finance Minister Arun Jaitley.
The accounts are unique because they will stay open even if empty.
Under the Jan Dhan Yojana, or the Scheme for People's Wealth, account holders will get a debit card. Those who open accounts by January 26 will get life insurance cover of Rs 30,000 in addition to accidental insurance for a lakh.
Account holders will also get an overdraft facility of up to Rs 5,000.
Some experts say the overdraft facility could end up swelling bad loans at banks as it does not spell out how the banks can collect debts.
By paying benefits directly into bank accounts, the scheme seeks to cut waste and corruption that inflate India's $43 billion or Rs 2.58 lakh crore subsidy bill, equivalent to more than 2 percent of the GDP, for handouts of grain, fuel and fertiliser.
The push for greater financial inclusion will also diminish the influence of moneylenders and other informal financing channels who operate outside the ambit of the Reserve Bank of India (RBI), blunting its monetary policy tools.
Experts caution that taking banking to rural areas where many people have no identity papers will be a huge challenge. Would-be bank customers have to produce a host of documents from birth certificates to residence proofs that many poor Indians do not possess.