India is the second-most populated country in the world with approximately 1.2 billion people living in the Asia-Pacific nation. And while Time magazine reported there are more than 900 million people in India who own either a cellphone or smartphone, in an article for Forbes, Saritha Rai wrote that more than one-third of the country's population doesn't bank.
In a separate report from The Wall Street Journal, citing data compiled by the World Bank, only 35 percent of those living in India have an account at a financial institution. The remaining 65 percent, if they are able to save money, do so without the use of financial services.
Because of this, Narendra Modi, Prime Minister of India, announced an ambitious initiative in 2014 called the "People's Wealth Program." The goal is to open 75 million accounts by August of this year, the Wharton School of the University of Pennsylvania wrote.
"There are millions of families who have mobile phones, but no bank accounts. We have to change this," the Wharton School quoted Modi as saying in a speech announcing the launch of India's new banking program that was launched on Aug. 28, 2014. "It is the end of financial untouchability. It is the beginning of freedom from poverty."
While India's technological revolution has been well-documented, the country's banking system is much farther behind. According to AllBankingSolutions.com, there are 27 banks in India that are either private or state-run. All of them implemented enrollment drives on the initial launch of the People's Wealth Program, a move that resulted in more than 15 million accounts being opened across the country, The Wall Street Journal wrote.
Under this new system, every account holder will receive a debit card, overdraft protection totaling $84 and accident insurance of up to $1,600, Forbes wrote. Over the next three years, Prime Minister Modi would like to see 75 million households in India that have at least two people with open bank accounts.
"Never before in economic history have 15 million bank accounts been opened in a single day," Modi said. "Never before have insurance companies issued 15 million accident policies in a single day. Never before has the government of India organized a program of such scale – over 77,000 locations – with the participation of so many chief ministers, union ministers, and government and bank officials."
More work to do
While the opening of so many bank accounts in a single day, and the overarching goal to provide banking services to all people in India regardless of their financial status, is a good move, the country's banking sector must improve its infrastructure to support such massive growth.
For example, the overdraft policy works similarly to a line of credit. And while the amount may be small, India must work to improve the financial literacy of the people living in the country or risk creating large amounts of consumer debt.
"It's quite possible you get people who don't know how to manage credit, how to manage their debt," Raghuram Rajan, governor of the Reserve Bank of India, told the Journal.
In addition, because having a bank account is so new for many people living in India, data from IFMR Trust, an Indian firm that advocates for financial inclusion, found many of the open accounts have thus far been inactive. The Wharton School also wrote that many people may have opened duplicate accounts because they are essentially unfamiliar with the banking process itself.
However, despite these minor hiccups, the move made by Prime Minister Modi could signal the beginning of a financial revolution similar to the technological one that has already taken place in India.