India Post : A Payments Bank

In January 2016, the Union Cabinet chaired by Prime Minister Namenda Modi approved the proposal for setting up of India Post Payment Bank (IPPB) for a total cost of Rs.800 crore. It has also received the certificate of incorporation from the Registrar of Companies. IPPB
is a new bank and is expected to commence its operations by March 2017 with 650 branches and 5000 ATMs across the country. It is expected that the Department of Posts will complete the rolling out of its branches all over the country by September 2017. Further scaling up to cover the entire country would take place by the end of 2018-19. According to the government this could be the fastest roll out of a bank anywhere in the world.

Chaired by Nachiket Mor the Committee on Comprehensive Financial Services for Small Businesses and Low Income Household, submitted its report on 7th January, 2014. The formation of a new category of banks called ‘Payments Bank’ was recommended in its report.

Why recommend payments banks?

The primary aim of setting up of payments banks across India is to improve Financial Inclusion or Antyodaya (serving the last man) standing by providing banking and financial services to everyone. Their primary goal is to provide limited but important financial services, such as small savings accounts and payments or remittance services, especially to the unbanked (people who don’t have access to formal and basic banking services), thereby resulting in greater financial inclusion. The Payment banks must have a wide network of branches or access points across the country, particularly in remote areas to bank the unbanked. They will have to cover everyone including migrant labourers, low income households, small and marginal businesses and other unorganised sector entities.

After issuing the guidelines of setting up of Payment Banks in November 2014, RBI received 41 applications from various Indian companies or entities. Of those 41 applications only 11 were selected to get license to set up payment banks. One among those 11 selected applicants is Department of Posts (DoP).

The DoP is gearing up to set up the payment bank. The India Post Payments Bank is envisaged to be a technologically enabled banking platform that would provide a very wide range of services such as direct benefit transfers (DBTs), all kinds of payment and remittance services, and most significantly it would also undertake the sale of a variety of third party products such as insurance and asset management services.

Why did the Government choose India Post to set up the Payment Bank?

India Post which would be running IPPB has an extremely wide network of more than 150,000 branches. Almost 140,000 of these branches are in rural India. This phenomenon gives the payments bank access to a network that is almost unrivalled in its reach.

India Post also employs 3 lakh agents in the rural areas across India. Already about 2.2 crore people receive their Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) payments in their post offices accounts. India Post money order service is widely used by migrant workers to remit money back home.

India Post already accepts money from its customers as part of the post office bank accounts and long-term deposit schemes such as National Savings Certificate. India Post has the second largest deposits valued at nearly ₹6 lakh crore only after State Bank of India. IPPB would be far ahead its competitors since it won’t have to gain the trust of customers, especially in the rural areas, as the local postman or Grameen Dak Sevaks or the Dakia is still an integral part of daily lives of the rural populace.

This huge reach, especially in rural and remote areas and an extremely big balance sheet makes India Post a perfect candidate for the Government to create a Universal Payment bank to achieve its goal of Financial Inclusion. India Post Payments Bank will be able to provide simple, low-cost and quality financial services to the masses.

IPPB like other Payment banks would not be lending money, and as a result it would be shielded from the risks that conventional and commercial banks are exposed to. To make its digital/online presence felt, to provide better and more efficient service and to reach a larger populace the DoP has already identified a Core Banking Solution (the Software that runs banks).

Realizing this huge potential, a lot of large companies and internationally acclaimed institutions have already expressed their interest to work in collaboration with the IPPB. These includes all the major nationalized and private sector banks in India and international financial giants such as International Finance Corporation, Deutshe Bank, Barclays Bank, Western Union, HSBC and Citibank.

It has been proposed that initially the existing Post Office Savings Bank (POSB) should run in parallel to the new bank. Later on they should be merged to form a single bank i.e. IPPB. Once it starts operations it would have to quickly move to an online platform to make it easier for customers to access their accounts and conduct transactions. It is envisaged to be a game changer for rural and suburban India.

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