The provision of over draft in Jan Dhan Yojana has many people in India excited though many of them do not fully understand what this facility is, in this article we will explain how an over draft works and why it is like an unsecured loan.
What is OverDraft in Jan Dhan Yojana ?
- An overdraft is a value added facility that banks provide for customers and preferred clients. A bank khata which has an overdraft allows the account holder to withdraw more money than what the bank account holds.
- An overdraft can be said to have occurred when the account balance goes below zero and becomes negative. It can also be compared to an unsecured short term loan given by the bank to it’s account holders.
- Example of Overdraft : Suppose you have an account opened under PMJDY in August 2014 and it has a balance of Rs 1000 in March 2015 and the bank has provided Rs 5000 as overdraft six months after you opened you account in February 2015. Then you can withdraw up to Rs 6000 from March 2015 from your account and when you withdraw the entire amount your bank balance will be shown as – 5000.
- Now ever time you deposit money into your over drawn account , the money will be adjusted against your overdraft and the balance will become zero only when you repay the entire Rs 5000.
- A nominal interest rate will be charged on the money withdrawn by you by the bank. In India overdraft usually attracts an interest rate between 12-20% p.a.
- Under Pradhan Mantri Jan Dhan Yojana, the limit for the overdraft has been set at Rs 5000 and will only be provided if the bank account is active and contains a good amount of money.
- The bank will decide which account will get the overdraft under PMJDY.
- If the Bank account holder successfully and regularly pays back the initial Rs 5000 over draft taken along with the Interest due, then the bank will increase the overdraft limit to Rs 15,000 to preferred customers over time.
5 Benefits of Overdraft in Pradhan Mantri Jan Dhan Yojana
- It helps in building a culture of Responsible Credit among the people of the country. It rewards those who repay their loans by extending higher amounts.
- By giving a loan and overdraft facilities without collateral to clients, PMJDY wants to help low-income people escape from the clutches of money lenders.
- The overdraft facility will benefit those customers who might need money in case of emergencies.
- It will help develop a credit profile of the person who opens the bank account and he may later be given personal loans and credit card facilities, if the bank is satisfied with his repayment schedule.
- It will help to transform India’s economy which relies heavily on cash payments into a cashless economy as the Rupay Kisan card can be used to make payments online and at merchant establishments. This decreases the need to carry cash everywhere.
How to become eligible for overdraft in PMJDY ?
- To become eligible for the overdraft in Pradhan Mantri Jan Dhan Yojana, the bank accountholder must transact regularly using his Rupay Card and he mush also maintain a high bank balance.
- Banks make a profit on accounts only when it has a positive balance and only when they find your Bank Account profitable will they extend overdraft facilities to you. So maintaining a healthy balance of Rs 4000 – 5000 per account will make it easier to avail the loan later on.
- Use your Rupay Kisan Card to make payments at merchant establishments which will lead to a positive credit profile.