Month: May 2021

For the first time in the last eight months, total balance in Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts has come down significantly in April.

As per latest government data, total balance in Jan Dhan accounts decreased to ₹1,43,297 crore as on April 28, 2021 as against ₹1,46,084 crore in the beginning of the month, a drop of ₹2,787 crore.

An analysis of total balance trajectory shows that generally the increase per month ranges from ₹1,000 crore to ₹1,500 crore.

During March, there was an addition of ₹5,882 crore in the accounts opened under the Centre’s flagship financial inclusion scheme which was attributed to the ‘push’ given by the elections in five States.

“But for the first time in the last eight months, we notice a decrease in total balance, which is a noteworthy point,’’ a senior State Bank of India official told BusinessLine.

The data show that it was in August 2020 (during the first wave of the pandemic) there was a decrease in balance from ₹1,32,538 crore (in July 2020) to ₹1,29,719 crore.

A recent report from SBI states that the bank’s business index, which has been declining in April 21, has now dipped to a new low of 75.7, the level it has attained in August 2020, and a clear 24.3 per cent drop from the pre-pandemic level.

“This indicates that the disruption caused by increased lockdowns/restrictions in various States is now having a meaningful impact on economic activity,’’ it says.

‘Early signs’

According to a top executive of a major public sector bank, there are more withdrawals from rural areas, especially in pockets where there is massive incidence of the second wave of Covid. “These are, of course, early signs, we need to analyse further.’’

“With more States announcing lockdown, the earnings of working class and wage earners have been adversely impacted. There has been a dip in urban to rural remittances in some States. This might be leading to withdrawals from the zero balance accounts,’’ he said, adding that the government ‘needs to act urgently’ to lessen the impact of the pandemic on the rural poor.

There has also been a decrease in number of new Jan Dhan accounts opened in April 2021 compared to April. While in March 2021, about 50 lakh new accounts were opened, approximately 30 lakh new accounts got added last month.

Purpose of the scheme

The dip in Jan Dhan account balance also proves that the intended purpose of the scheme is being met as people now use the savings in their accounts in tough times, Prasanna Tantri, Executive Director, Center for Analytical Finance, Indian School of Business, said.

“This also shows increasing financial literacy on the part of the account holders most of whom are poor,’’ he added pointing out that the impact of the second wave of the pandemic is still not as bad as it was during last year April-May, he said.

State Bank of India sees the recently-introduced pre-packaged insolvency resolution process (PPIRP) for MSME corporates as another good tool in its armoury for resolving stress.

Swaminathan Janakiraman, Managing Director (Risk, Compliance and Stressed Assets Resolution Group (SARG), SBI, told BusinessLine that the bank was putting together a policy framework for the same.

“We are putting together a board-approved policy framework for implementation of pre-pack among our MSME corporate customers. Over the next 4-6 weeks, we will start implementation and much would depend on how the ongoing second wave of Covid-19 plays out,” said Janakiraman. He made it clear that SBI would like to have multiple tools for resolving stress and that PPIRP cannot be a one-size fits all solution for the bank.

“We would see this as yet another good tool for resolving stress rather than taking a position that this will be the be all and leave out everything else. Pre-packs will looked at on a case to case basis.

“It will get applied selectively to begin with as several existing mechanisms like RBI’s MSME restructuring, regulatory forbearance, one-time settlement, are all options that could be used by the bank to resolve stress,” he said.

In the Indian context, a pre-packaged insolvency is an arrangement where the resolution of a company’s business is negotiated with the corporate debtor before the appointment of an insolvency professional. It is a blend of informal and formal mechanisms, with the informal process stretching up to NCLT admission, followed by an existing NCLT supervised process for resolution, specified under the Insolvency and Bankruptcy Code (IBC).

“We are preparing the ground for pre-pack implementation, given the Covid-19 situation we would like to wait for sometime before we go full throttle on this,” said Janakiraman.

He also pointed out that since April 1,2019, an MSME restructuring package had been introduced by the government and after one-year extension, this facility got over on end March 2021. Now, the RBI has few days back announced similar measures for exposures up to ₹25 crore that can be invoked by banks.

“Since there is regulatory forbearance and enabling restructuring already in place, most likely banks for the present may go for these measures rather than adding additional layer of NCLT to the process by adopting PPIRP,” he noted.

A viable alternative

Pre-packs are billed as a viable alternative to the Corporate Insolvency Resolution Process (CIRP) as they would be significantly less time consuming and inexpensive as against the formal insolvency proceedings. Janakiraman felt it would not be right to compare PPIRP and CIRP as they cater to different segments of people.

Meanwhile, Ashok Haldia, Chairman of Indian Institute of Insolvency Professionals of ICAI, said: “Pre-pack is preferred and, in fact, it should be first option given the formal and informal — outside IBC, process outlined in the Framework- leading to speed, trust and transparency.”