Banks to soon roll out pre-approved overdraft facility from ATMs
Nudged by the government, banks will soon provide a pre-approved overdraft facility, which can be accessed directly from automated teller machines (ATMs), without the need for customers of financial inclusion programme Pradhan Mantri Jan Dhan Yojana (PMJDY) to visit the bank branch for prior approval.
State Bank of India (SBI) will be the first to roll out the facility next month. An emailed questionnaire sent to SBI’s spokesperson remained unanswered.
Customers who have accounts under the government’s flagship financial inclusion programme launched in August 2014 can avail an overdraft of up to Rs.5,000. The amount will depend on the credit profile and usage by customers. This facility aims to reduce the dependence of small borrowers on money lenders and provide easy access to working capital without unnecessary paper work, said a finance ministry official, who did not want to be identified.
“Why should a customer travel a long distance and visit his bank branch and apply for an overdraft? Why can’t the bank use algorithm to ensure that the customer’s overdraft limit is pre-approved based on his credit history? And when this customer goes to an ATM, he is informed that this is your overdraft limit, and asked if he wants to avail it,” said the official. “Easy access to overdraft facility will ensure a small trader does not borrow from a money lender at exorbitant rates and then use it for working capital,” he said.
Regular use of the bank account, effort to maintain some bank balance as well as prompt repayment of loans are some of the factors which will weigh in favour of borrowers at the time of availing the overdraft facility.
More than 190 million accounts have been opened under PMJDY since its launch. Of this, 45.98 lakh accounts were offered the overdraft facility. But the overdraft was sanctioned for only around 24 lakh accounts, of which only around 8.85 lakh accounts availed this facility, as per data compiled by the ministry of finance.
So far, banks have given an overdraft of Rs.124 crore under this scheme, prompting the government to nudge banks to make the whole process more customer friendly.