PMJDY Overdraft Facility

The overdraft facility under the Pradhan Mantri Jan Dhan Yojana (PMJDY) represents a significant instrument of financial inclusion in India’s banking and financial system. Introduced as part of the broader PMJDY framework, the overdraft facility aims to provide basic, affordable credit access to financially excluded households. In the context of banking, finance, and the Indian economy, this facility plays a vital role in linking low-income populations to formal credit channels, reducing dependence on informal lenders, and supporting inclusive economic growth.

Background of PMJDY and the Overdraft Concept

The Pradhan Mantri Jan Dhan Yojana was launched in 2014 with the objective of ensuring universal access to banking services such as savings accounts, remittances, credit, insurance, and pension facilities. The overdraft facility was incorporated to move financial inclusion beyond mere account ownership towards meaningful financial usage.
An overdraft facility allows an account holder to withdraw more money than the available balance in their bank account, up to a specified limit. Under PMJDY, this facility is designed as a small, short-term credit line to meet urgent consumption or livelihood needs of economically weaker sections.

Objectives of the PMJDY Overdraft Facility

The key objectives of the PMJDY overdraft facility include expanding access to formal credit for low-income households, reducing reliance on high-cost informal borrowing, promoting responsible banking behaviour, and strengthening the credit culture among first-time bank users. By providing collateral-free credit, the facility seeks to address liquidity constraints faced by vulnerable groups.
The overdraft facility also supports broader policy goals such as poverty reduction, social security delivery, and empowerment of marginalised sections, particularly women.

Features of the Overdraft Facility

The PMJDY overdraft facility is subject to specific conditions to ensure prudent lending and repayment discipline. Initially, eligible account holders were provided an overdraft limit of up to ₹5,000, which was later enhanced to ₹10,000 for qualifying beneficiaries.
Eligibility is generally linked to satisfactory account operation, such as regular transactions and adherence to repayment norms. Only one account per household is eligible for the overdraft facility, with preference often given to female account holders to promote women’s financial empowerment.
The overdraft is typically provided without collateral and at concessional interest rates compared to informal credit sources. Repayment performance influences continued access and potential enhancement of credit limits.

Role of Banks and the Reserve Bank of India

Public sector banks play a central role in implementing the PMJDY overdraft facility, given their extensive branch networks and mandate for inclusive banking. The regulatory framework for the facility is overseen by the Reserve Bank of India, which provides guidelines on priority sector lending, risk management, and consumer protection.
From a banking perspective, the overdraft facility is treated as a form of small-ticket, unsecured lending. Banks are required to balance financial inclusion objectives with credit risk management, particularly given the limited income stability of many beneficiaries.

Impact on Financial Inclusion and Credit Access

The PMJDY overdraft facility has significantly expanded access to formal credit for households that were previously excluded from the banking system. By enabling account holders to meet emergency expenses, smooth consumption, or support micro-enterprises, the facility enhances the functional value of basic savings accounts.
The integration of overdraft credit with direct benefit transfers and digital payment systems has further strengthened account activity and reduced dormancy. This has improved the overall effectiveness of financial inclusion efforts in India.

Economic Implications for the Indian Economy

At the macroeconomic level, the PMJDY overdraft facility contributes to increased consumption demand, particularly in rural and semi-urban areas. Small credit access supports self-employment, informal sector activities, and household resilience against income shocks.
By formalising credit access, the facility helps channel household borrowing into the regulated financial system, improving transparency and monetary policy transmission. It also complements other social and financial initiatives aimed at inclusive growth and poverty alleviation.