One out of every five Jan Dhan bank accounts — touted as the holy grail of financial inclusion — is inoperative, the Centre has admitted.

The deposit balance in these accounts is estimated at Rs 11,500 crore, which is about 5.6 per cent of the total deposits in the Prime Minister Jan Dhan Yojna accounts, Bhagwat Karad, minister of state for finance, has said.

Replying to a letter written by Jawhar Sircar, Rajya Sabha MP from the Trinamul Congress, the minister said there were 50.81 crore Jan Dhan accounts as of October 25, 2023, adding that “around 18 to 20 per cent accounts are inoperative”.

However, Karad denied that these account holders were untraceable and that this could have led to these accounts becoming inoperative.

“According to Reserve Bank of India guidelines, a savings as well as current account should be treated as inoperative/dormant, if there are no customer induced transactions in the account for over a period of two years. The reasons for the account turning inoperative can be many and it has no direct correlation to the account holder being untraceable,” the minister wrote to Sircar on December 4.

The minister stressed that the percentage of inoperative accounts among Jan Dhan account holders are in line with the rest of the banking industry, underlining that the accounts meant to bring the unbanked population within the ambit of the banking industry are functioning in the normal course.

Financial inclusion was one of the first programmes that Narendra Modi had launched after becoming the Prime Minister. The scheme was formally launched on August 28, 2014, just weeks after the Prime Minister announced it from the Red Fort during his speech on Independence Day.

Banking industry sources said there could be multiple reasons for Jan Dhan accounts becoming inoperative. But a commonly occurring instance is where an individual could have migrated to a different state for work and has another bank account in that location which is under active use. That is when the other account turns dormant or inactive.

The RBI has allowed banks to continue to credit direct benefit transfers even as the account has turned inactive.

The minister pointed out that being inoperative would not necessarily mean that it would continue to remain so going forward as the account holder can activate it by submitting required KYC (know your client) documents

“There was a definite rush in opening bank accounts in the early days of Jan Dhan Yojana in 2014. But since then regulations have been tightened, particularly under PMLA.

“When it comes to KYC, banks today have to walk a fine line between not inconveniencing the customer and conducting due diligence to avoid fraud. This is particularly difficult and time-consuming in the remotest parts of the country,” a public sector bank executive said.

Customers of Jan Dhan accounts are not required to maintain a minimum balance. These accounts were used by the Modi government to transfer subsidies — food / LPG among others — directly to the recipients.

The letter to the Trinamul MP said the department of financial services, during its periodic reviews, urges banks to reduce the percentage of inoperative accounts.

“As a result of various initiatives, the percentage of inoperative bank accounts has come down from 40 per cent in March 2017 to 19.9 per cent in October 2023,” Karad said in his letter to Sircar.