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India Post Gears Up For Payments Banking

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India Post is not new to banking-like services like opening accounts, taking deposits, allowing withdrawals and sending money. With Payment Banking licence for India Post, there will be some changes reports Ashish Sinha
 
In order to meet the regulatory and legal requirements of operating a payments bank, Department of Post has initiated steps to hive off its postal arm - India Post as and set it up as a 100 per cent subsidiary company – a mandatory requirement for operating a Payments Bank. “Steps have been taken to hive off India Post as a separate unit. Payments banking via India Post should be operational any time after April 2016,” said a senior official.
 
In order to set up a 100 per cent subsidiary of department of posts, an approval from the Union Cabinet is a must. The modalities of the entire process of how India Post will operate as a separate entity will be worked out in a draft Cabinet note, which will then go before the Cabinet for approval. Communications minister Ravi Shankar Prasad envisages the creation of around five lakh jobs for rural and tribal Indians within the proposed network of India Post Payments Banking services.
 
India Post is among the 11 chosen ones selected by the Reserve Bank of India to offer a payments bank. The 11 names who have been granted the Payments Bank licence are India Post, National Securities Depository Ltd, Tech Mahindra, Vodafone, Reliance Industries Ltd, Airtel, Aditya Birla Nuvo, Fino Paytech,  Cholamandalam, Dilip Sahnghvi, and Vijay Sharma.
 
What is a Payments Bank? What are its dos and don’ts?
Payments banks are institutions that will offer most of the banking services except loans and credit card products to retail customers. Payments bank cannot accept deposits of more than one lakh Rupees per account. Payments banks cannot pay high interest on their deposits as they are required by law to maintain 75 per cent of their deposits in government securities, where the interest are typically less than eight per cent or so.
Payments banks will be allowed to set up automated teller machines or ATMs as they are popularly known. But withdraws via ATMs can be chargeable.
 
Advantage India Post Payments bank
India Post, by virtue of its widespread network covering a large part of the country stands to gain from the first day, experts said. This is because as against a network of less than 40,000 branches of all scheduled commercial banks, department of posts has a network of 1.5 lakh post offices, with a lion’s share in rural India.
 
While others in the payments banking business are expected to run their respective operations for commercial purposes, India Post, by virtue of being under Government of India, may not.
 
Payments bank can also offer life insurance. But the department of post has been providing postal life insurance, since 1884, and rural postal life insurance since 1995. The experience is going to give India Post a big head start over others, experts said. There is one disadvantage too. Since RBI norms on payments banking does not allow the service provider to grant loans, this vast network of post offices may go waste, especially when it comes to granting smaller loans to very poor and tribal Indians, who are otherwise outside the normal banking services network.
 
Till some years ago, the department of post was aggressively working towards obtaining a full banking licence. In fact, the department had applied to RBI for a banking licence for its fully-owned subsidiary, India Post. However, the financial situation of the department, by virtue of always under a deficit, worked against it. As per the official figures, the department of post has witnessed a steady escalation in its annual deficit – from Rs 5,339 crore in 2013-14 to Rs 6,665 crore in 2015-16. As a result, the payments banking licence was granted to a separate entity called India which will further need to be set up as a 100 per cent subsidiary for undertaking the payments banking operations.