India’s Poorest Now Have Access to Basic Bank Accounts, and Many Already Received their First Cash Stimulus Payment By Last Saturday; Meanwhile the IRS May Get You Your $1200 Check in Five Months

By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.

So, while I was drinking my morning coffee yesterday and reflecting on the logistical troubles the United States is having in getting stimulus funds to people who need them, the following account in the Times of India caught my eye, Covid-19 lockdown: Cash reaches 40% of 20 cr women beneficiaries:

The largest-ever cash transfer scheme launched on Friday to put Rs 30,000 crore in Jan Dhan accounts of women has validated the evangelical push for implementation of the Jan Dhan scheme which saw the government exhorting crores of people to open bank accounts.

By Saturday, the accounts of around 40% of the 20-crore women beneficiaries had seen cash deposits of Rs 500 each [about $US 7). Similarly, around 8 crore beneficiaries of the Ujjwala scheme will get close to Rs 5,000 crore in their bank accounts to purchase cooking gas cylinders for three months.

Let me translate this into terms that non-Indians will understand, 1 crore is 10,000,000. So 20 crore is 200 million women beneficiaries. According to the Hindu, Women beneficiaries can withdraw ₹500 from Jan Dhan accounts from April 3:

The Indian Banks’ Association (IBA) has said that women beneficiaries of the Jan Dhan account can start withdrawing ₹500 from April 3, in the first of the three instalments of a sum of ₹1,500 relief announced by the Centre as part of the fight against COVID-19.

The government has announced ₹1,500 transfer to the women beneficiaries of Jan Dhan account holders in three instalments.

‘Under the Pradhan Mantri Garib Kalyan package, ₹500 per month is being deposited into the accounts of women Jan Dhan Yojana beneficiaries by all banks. This is first of the 3 monthly instalments,” IBA said in a statement.

The government of Prime Minister Narendra Modi launched the Jan Dhan scheme in 2014 to provide basic banking services to the considerable number of Indians- who then lacked bank accounts, but this program was the brainchild of the previous government led by Prime Minister Manmohan Singh. These accounts allow the government to make direct benefits transfers (DBTs) direct to beneficiaries without the involvement of any middleman.  The latest 500 rupee cash deposit  stimulus is only one such payment, and subsidized cooking gas another. Another type of DBT is payments students.

The 500 rupee cash deposits are not the only crisis payments being made at this time. According to the Times of India:

The government’s announcement will see 20 crore women Jan Dhan account holders get Rs 500 per month for the next three months; increase in [Mahatma Gandhi National Rural Employment MGNREGA] wage to Rs 202 a day from Rs 182 to benefit 13.62 crore families ; ex-gratia of Rs 1,000 to 3 crore poor senior citizens, poor widows and poor disabled.The government will also front-load Rs 2,000 paid to farmers in the first week of April under the existing PM Kisan Yojana to benefit 8.7 crore farmers, as well as extend insurance cover of Rs 50 lakh per health worker fighting Covid-19.

Private banks typically do not extend banking services to the very poor, as it costs them more to offer a bank account than they earn from offering it. Yet  India still has several state-owned banks, and it has addressed the problem of the unbanked by requiring these banks to offer basic accounts to everyone who wants one. These accounts can accept DBTs, and a holder can also deposit up to 50,000 Indian rupees [about $US 650]  per year. If an account holder wants to deposit more than 50,000, rupees in a year, s/he can upgrade the account to a full service account.

I immediately called one of my oldest friends in Kolkata, Tushar Roy, who is a chief manager for the Central Bank of India, one of India’s state-owed banks. He has worked  as lead district manager for three years, coordinating among the central government, the West Bengal state government, and all the banks of the district, both private and state-owned, in setting up bank accounts for the unbanked. The holder of the account can access the DBT the government has made either through a branch, by banking correspondents – where there is no bank branch – or via ATMs.

“At this time, nearly every adult in India has a basic bank account, as there  is no minimum balance requirement,” said Roy. “In fact, it would be extremely difficult to find an adult who does not hold an account. Even many students who are more than ten years old have their own  accounts, especially those who live in rural areas and receive scholarships.”

Imperfect Indian System

Now, the situation in India is by no means perfect. For starters, economists such as Jayati Ghosh question the adequacy of the size of the overall stimulus the government has tendered – and it will almost certainly have to pony up more funds, especially if the current crisis worsens  significantly (for more on this point, Saving Citizens, Killing the Poor: India and COVID-19).The purpose of this post, however, is not to discuss the size of the stimulus, per se, but rather the logistics of how is it being delivered.

I also don’t want to forget the migrant workers, many of whom remain stranded by the current lockdown somewhere between the cities in which they typically work and the rural homes they sought  to reach to ride out the lockdown (see the previous link for further details).

There is a dearth of banks and ATMs in rural India, where many of the India’s poor reside, with Reserve Bank of India data showing only 45,000 of the country’s 230,000 ATMS are located in rural locations, according to the Economic Times in Coronavirus: Relief package for the poor via DBT may face hurdles. But for these people, the system provides for them to get access to  money in their bank accounts by using banking correspondents.

Comparison to the US

Let’s compare the Indian situation to that of individual U.S. recipients targeted for the stimulus. Those eligible for the stimulus payments – $1200 per single filter, $2400 for married couples filing jointly, subject to income qualifications – and who either have supplied direct deposit information with the Internal Revenue Service (IRS), or who receive Social Security, should get their payments by mid-April says Treasury Secretary Steven Mnuchin, according to this account published Saturday in Business Insider, Everything we know about the coronavirus stimulus checks that will pay many Americans up to $1,200 each

Alas, for others:

If we don’t have your information you’ll have a a simple web portal, we’ll upload it. If we don’t have that, we’ll send you checks in the mail.”

Ut oh. And when, pray tell, can people expect such checks to arrive?

NBC News reports in Many Americans may have to wait months for coronavirus relief checks:

A memo circulated this week by Democrats on the House Ways and Means Committee, obtained by NBC News, says Americans who have direct deposit information on file will get their payments in mid-April, “likely” the week of April 13. The document estimates that 60 million Americans will get checks at that point.

About three weeks after those deposits go out, the IRS will start issuing paper checks, most likely the week of May 4, according to the memo. The office that issues paper checks can process about 5 million a week, so it could take 20 weeks — nearly five months — to get them all out.

The IRS will process paper checks for the lowest-income Americans first.

Some of Americans who need this money most are unbanked or underbanked; IIRC, estimates of the total combined percentage of unbaked and underbanked households hovers at about 25%. Just as in the Indian case, part of the reason this is so is that private banks would lose money by providing them with an account.

Alas, the policy India has followed – establishing basic bank accounts for the unbanked, partly so as to facilitate direct benefits transfer from the government – is not something the has chosen to pursue. Back in 2014, Then-Senator Elizabeth Warren promoted a plan to have the U.S Postal Service offer basic banking services, such as bill paying, check cashing and small-dollar loans, according to the Campaign for Postal Banking, “WHY WE NEED A BANK AT THE POST OFFICE” Such an institution, if up and running, might as in India, facilitate the transfer of stimulus funds. Instead, the proposal died – and unless I missed it, Warren did not press very hard for this idea during her campaign for the Democratic presidential nomination. (For an overview of the post  office bank concept, see this 2014  post by Yves, Mirabile Dictu! Post Office Bank Concept Gets Big Boost.)

It will serve as cold comfort to some Americans, who desperately need money right now, to wait up to five months for their payments – and be told: your check is in the mail.

And, I might mention, state payments for those who qualify – unemployment benefits, for example – could also be delivered to the same accounts, once they were established.

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  1. Bugs Bunny

    Hi JLS – there’s a 0 missing at the end of “Let me translate this into terms that non-Indians will understand, 1 crore is 10,000,00[0]”

    I love lakh and crore. Very useful once you get used to the concept. Especially in regards to land prices in India – which have another interesting measurement.

    I think I mentioned here that I was temp-checked and given a pointed COVID questionnaire back in mid-Feb arriving in Kolkata. India was ahead of the curve. Who’s the 3rd World? idk

    ATMs are a problem but usually the nearest town of more than 1000 will have one, in my experience.

    1. Jerri-Lynn Scofield Post author

      Thanks for the correction – fixed it.

      Yes, where would we be without lakhs and crores?

      Interesting to hear your report of Kolkata airport screening in mid-Feb. The papers reported the authorities were screening, but not on the details.

      Whether the ATM works is another matter.

  2. sd

    Could the federal government implement banking services at the Post Office for small accounts?

    1. John Zelnicker

      April 6, 2020 at 1:51 pm

      Yes, it could, and quite easily. The post office once offered a type of savings account and currently sells money orders. It’s one of the best answers to the predation of the national banks.

      Ellen Brown has written extensively on public banking (cf. North Dakota) and postal banking. There are also several NC posts on postal banking, IIRC.

      1. Jerri-Lynn Scofield Post author

        Yes, good historical reminder. I just added a reference in the text to a 2014 post by Yves for readers who either may not be familiar with the concept or for others who’d like a refresher.

    2. Lyle

      Actually the prepaid debit card is the vehicle here, that already exists it works just like a regular debit card,
      you can use if for purchases and at atms. If someone already has one direct deposit is possible These cards have the advantage for the bank that they cannot be design be overdrawn. A number of states do this already. For social security benefits this is already possible, as for a number of welfare benefits. The card is called direct express “The Direct Express® Debit MasterCard® card – issued by Comerica Bank as the Treasury Department’s financial agent – is a prepaid debit card and electronic payment option for federal benefits. The card is a Treasury-recommended, safe, convenient alternative to paper checks.” So all they would have to do if the left hand talks to the right hand is allow folks to sign up to get their stimulus deposited onto the card. the government prefers this as it minimizes the chances for theft. This is why a few years ago social security went to a direct deposit only, including these cards because their used to be a wave of mailbox robberies around the first of the month. So effectively we have a system that is already described that has eliminated checks with the cost of cashing them etc, as well as reducing the possibility of theft. Some media type should ask Munchin why this system is not being used in addition to direct bank deposits. BTW the account has fdic insurance up to 250k , Given the way the government manages to screw up it projects mightly, it makes sense to utilize existing infrastructure.

      1. HotFlash

        WRT the prepaid debit card is the vehicle here

        My dear! Oh, dingy ding ding ding! Here is Square’s (rather chirpy) fee list. No idea if it is actually comprehensive, but add all that up. If debit is the only way in for your SNAP benefits, corona virus unemployment payments (10 million and counting), whatever, then debit is the only way to pay for small transactions. It may not seem like a lot per transaction, but hey, you can make it up on volume.

        1. JBird4049

          Ah, those marvelous transactions where they charge you dollars for the pennies (if that) it costs them to provide the services.

          On those debit cards, including the SNAP ones, there is no privacy whatsoever with them as the clerks at the H&HS can see what you have where, when, and where you have bought. Still, it would be a fairly easy and quick way to get money to people ASAP since you don’t need a bank account, or even a fixed address really, to use them.

        1. rd

          NYS unemployment debit card is through KeyBank. No fees for ATM or counter withdrawals at Keybank and I believe no fees for using it at merchants. The withdrawal limits are big so you can take a lot of cash out at once. One of my kids got one as he was furloughed and it just looks like a regular KeyBank debit card based on the info that came with it. There are some transaction fees for non-Keybank ATMs – but it looked to me like the biggest transaction fee would probably be from the non-KeyBank ATM itself, not the KeyBank fee. Most of the transaction fees were associated with international transactions that are highly unlikely for the typical unemployed person.

          The Federal Government could do something that would be no transaction fee through federal credit unions since there are many of them around the country. But that would require organization and thinking about the citizens.

          1. philnc

            Undoubtedly, they’d try to user-fee the crap out of it. Bernie has the restoration of postal banking in his platform, and it shows up in the demands of many progressive groups (e.g. I think DSA lists it). I’ve come to believe that user fees, especially when means tested, are corrosive and only serve to provide opportunities for mischief at the hands of bureaucrats who consider themselves imperial ministers instead of public servants. They also help to make public services less competitive with the private sector.

  3. Chris

    This is definitely a reason to have a Postal Banking system. If the next administration can use national pride as a way of rallying people around a common sense idea, it would go a long way to getting everyone banked.

    1. lyle

      As I pointed out above the us effectively has the modern national equivalent of a postal bank with the direct express card which the treasury contracts for. For those who are currently unbanked or who have bounced so many checks in the past that banks won’t give them an account this is an alternative.
      To answer a later issue, this type of system eliminates the need for branches totally. (As a number of banks have done) Retail stores will load cash onto the card already, and if you want cash you go to an atm machine. so what does a branch do for them?

    2. HotFlash

      If the next administration can use national pride as a way of rallying people around a common sense idea

      Well, what do you think the next administration might be? Trump? Biden? Sanders? Which of these three might actually do such a thing as you suggest?

  4. Alex Cox

    The British Post Office used to offer banking services – it was called the Giro Bank. I forget which reforming government shut it down. Either Major’s or Blair’s.

    1. Synoia

      Before Giro the UK Royal Mail offered saving accounts. I had one. I opened it between 1961 and 1963.

      The GIRO system avoided the bounced checks which are a feature of the debit transfer system with Banks. If you made a payment, your account was debited before the recipients account was credited.

  5. periol

    The other fun detail about the stimulus I discovered last night is that it is essentially a pre-payment for next year’s tax return refund. So people expecting a refund in 2020 would have the refund reduced by the amount of their stimulus check.

    It will not act as money owed, however, so if you end the year owing Uncle Same $0 or $200 or whatever, there won’t be an extra $1,200 added on.

    Might be a good idea to get that new W-4 form, go over it with a fine-tooth comb, and adjust your tax withholding for the rest of the year if you work in a situation that deducts federal taxes from your paycheck.

    “In essence, the stimulus check acts as an advance of your 2020 income tax refund. This means when you prepare your 2020 income tax return, there will be a line to include the section 6428 credit. The credit on your 2020 return is subtracted by any amount received as a stimulus check in 2020. If the amount you received as a stimulus check is less than the credit you are due, the difference will be included as part of your 2020 refund. If you have been overpaid by receiving the stimulus check, however, you will not be required to return any excess amount.”

    1. Billy

      i.e. file an exemption from withholding. That way you owe them money at the end of the year, instead of having to apply for your own money back, minus $1200, as the post above shows.

      1. John Zelnicker

        April 6, 2020 at 10:28 pm

        You have the right idea, but not quite the solution. Exemption from withholding has qualifications that most people won’t be able to meet.

        The new Form W-4 asks you to enter an amount times the number of dependents you are going to claim on your tax return. More dependents means lower income tax withholding.

    2. John Rose

      Does that apply to the Earned Income Tax Credit as well. If so, a super hit on the poor.

  6. psv

    Jerri-Lynn, thank you for both this post and the one on Saving Citizens, Killing the Poor the other day. It’s really valuable getting this level of detail on India here at NC.

    Glad to see sd, John and Chris bring up post office banking too.

    1. OpenThePodBayDoorsHAL

      Can’t overestimate what India accomplished on the cultural level, previously it was common for an Indian woman entering a bank to be shooed away. Husbands did (do?) not want wives controlling financial assets, you never know what she will get up to. Husbands also liked getting their family wage money first, they could drink it away before Mom gets to go buy groceries or pay school fees with it.

      In the West women have had these rights for a while…but actually not for that long:

      On 13 July 1965, women in France became bank clients in their own right, when reforms to French Family Law were passed entitling every woman to undertake employment and open a bank account in her own name without authorisation from her husband.

  7. L

    This is an interesting volte-face from the Modi government who tried a massive, and ultimately failed, scheme to restrict cash just a few short years ago. Back then they wanted to reduce currency in the market and favor more complex (read commercial-bank friendly) credit card systems.

    Amazing how a real crisis changes things.

    1. HotFlash

      Again, I don’t understand. Payments are being made in *electronic* currency to *electronic* accounts. How is this a volte face? I would read this as a justification, vindication, and (whoa) total victory of Modi’s cashless plan! If I have gotten this wrong, could you (or anyone) please enlighten me.

  8. notabanktoadie

    While local Post Offices could serve as convenient branch locations, the accounts themselves should be at the Central Bank itself, alongside those of depository institutions, aka “the banks.”

    Why? Because of a little thing called equal protection under the law, which is long overdue when it comes to fiat creation and use.

    Anyone remember “separate but equal”? Likewise, a Postal Bank is not a means to promote justice but to thwart it – a dead end at best.

    1. HotFlash

      My dear n’toadie,
      I do not fully follow your arguments, esp the “a Postal Bank is not a means to promote justice but to thwart it”.

      Could you please provide a more comprehensive structure (expl, links, references, whatever) so that I can educe myself and understand?
      xoxox (virtually),

      1. notabanktoadie

        , esp the “a Postal Bank is not a means to promote justice but to thwart it”. Hotflash

        Because accounts at a Postal Bank would not be in fiat itself but in mere liabilities for fiat – same as with private banks. This would allow the PB to engage in interbank lending and to play other games with the fiat backing those liabilities – same as private banks do. But what good is that wrt justice and stability?

        What we need instead is simply a fiat debit and checking service so that citizens can FINALLY use their Nation’s fiat in account form same as the banks do. Is that so unreasonable?

        Indeed, I’d say the burden of proof should be on those who deny that citizens have an inherent right to use fiat in inherently risk-free account form – same as the banks do.

        Of course, once citizens (at least) can have inherently risk-free accounts at the Central Bank itself then deposit guarantees and other privileges for the banks are exposed as the unnecessary welfare for the banks and the rich they really are.

  9. Jack

    I agree with the strategies regarding the postal bank, eliminating the unbanked, etc. The way our government is currently trying to do this appears to be simply window dressing, at least for the individual and small business payments. Notice how all of the big corporations, etc. were immediately receiving payments. But in this crisis there is a much easier way to immediately transfer money to individuals if the govt was really interested in doing so. Every citizen in the USA has a SSN. SS administration knows the age and for most of them, a current address. There are about 331 million people in the US right now. Step one, would be to pay all current recipients of SS. That is about 1 in 5, 61 million people. They all have direct deposit and this could be quickly accomplished using the current SS payment system. Step 2, about 3 out of 4 in the US receive a tax refund every year. Most of those individuals have a bank account. Lets call that 200 million. Current IRS system could easily send a payment directly to bank account. That leaves about 70 million. Step 3, refine the 70 million by age, available address. Mail a voucher for $1200 for those over 18 and $500 for those under to last known address. Voucher is redeemable at any bank, grocery store. with proof of SS and valid ID. If voucher is for a child, parent could redeem (voucher would have both parents name and SSN on it). For those without ID, they can appear with two witnesses who have ID, verify their identity and then redeem voucher. Step 4, while all of the aforementioned is occurring, set up a SS# database that records payments against SSNs. Make that database available to all banks and credit unions. After a certain date, anyone who did not receive a voucher or direct deposit can visit any bank or credit union and file a claim for payment (stagger date by last number of SSN so too many people do not show up at once), and at the same time open a basic savings bank account. All that would be required would be an ID and proof of SSN, no other requirements. Govt would pay bank/cu that opened account a processing fee to open account. Sure, there would be some fraud and still some people would be overlooked, but this process would pay almost everyone almost immediately. And you could do it every month. Of course, that is if the govt is really interested in helping people and not just big business.

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