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Modi Govt's Next Big Thing: Postal Bank Soon
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India’s massive postal network is likely to turn into payment banks by late next month, reaching out to the unbanked section of the society under Prime Minister Narendra Modi's Jan Dhan programme. Top officials said they expected the Reserve Bank of India to grant a payment bank licence to India Post, reports The Telegraph.
A payment bank accepts deposits only. The credit part is handled by other banks on behalf of the payments bank. The postal department has decided to rope in professionals from the private sector for top positions at Post Bank of India (PBI).
The Indian postal network has 1,54,822 post offices. Of these, 1,39,086 are in rural areas and 15,736 in urban regions. India Post's entry into the banking space will impact rural banking because of its massive reach in small towns and villages of the country.
The proposed PBI may also get listed on bourses to raise funds, according to the Department of Posts (DoP). The postal banks are proposed to be owned by the DoP but with an independent board, governance structure and operations. It will have representation from the ministries of finance and communication and IT.
The postal department plans to start 50 bank branches in the first year and scale it up to 150 in five years. In 2014, Modi had set up the task force to leverage the postal network and to enhance the role of India Post in financial inclusion, among other services such as the delivery of goods for e-commerce firms. In December, the task force had submitted its report to telecom minister Ravi Shankar Prasad. It noted that with its Rs 6 lakh crore in deposits, India Post is second only to the to the country’s largest bank State Bank of India (SBI).
The postal department, which has been relegated into oblivion by private courier companies and the spread of the Internet, is suffering losses of over Rs 6,000 crore annually. However, post office savings schemes and money order windows remain popular. Rural post offices, which account for nearly 90 per cent of the network, cover large parts of the country where bank branches are absent.
According to a report in The Hindu, India Post already runs the post office savings bank account, which handles cash worth Rs 6 lakh crore per year across 28 crore accounts. The service has also been quite successfully handling cash payments in the Mahatma Gandhi National Rural Employment Guarantee Act — nearly 5.6 crore MGNREGA accounts, and wages amounting to nearly Rs. 10,000 crore have been disbursed to beneficiaries through 97,709 post offices across the country. Of the three main building blocks of financial inclusion — cash storage, disbursing payments, and giving credit — India Post has already shown that it is quite capable of handling the first two.
Allowing India Post to undertake regular banking functions would serve two objectives. First, it would make the institution more viable than it is at present on account of its being restricted to loss-making postal operations. Second, its unique outreach would equip it to serve social objectives. Internationally, there are a few countries which have tapped the postal institution for extending financial inclusion. For instance, in Brazil, financial inclusion got a boost after Brazil Post formed a partnership with financial institutions.