Payment bank route for India Post
New Delhi: The long drawn out battle between the finance ministry and the department of posts over the issue of transforming post offices into banks may end up in a compromise solution — turn India Post into a payment bank.
The Reserve Bank had come out with the draft guidelines for payment and other niche banks in July this year. The finance ministry wants post offices to use this window instead of the universal banking licence, which both the postal department and the RBI were keen on.
The postal department has now accepted that it should settle for a limited licence to continue doing what it has been doing all along — provide deposit banking services in rural and semi-rural areas under a payment bank licence.
Officials said they would move the RBI for the licence once the apex bank invites applications. The final guidelines on payment banks are expected next month.
A payment bank accepts deposits only. The credit part is handled by other banks on behalf of the payments bank.
At present, post offices use their deposits to invest in government securities with fixed incomes, placing a ceiling on interest offered to depositors.
Deciding factors
In its decision on a payment bank, the finance ministry has been swayed by the challenges posed by the large physical network of the postal department. Post offices are by nature stodgy bureaucratic monoliths with little understanding of how modern banks function despite handling millions of savings accounts. This was one of the main objections raised by the ministry in the discussions with the department of posts.
Transforming the post office into a bank will also help to push Prime Minister Narendra Modi’s Jan Dhan programme, which has already managed to help around 5.92 million people to open accounts with a balance of Rs 3,971 crore.
Leveraging network
The government can use the 1.54 lakh post offices across the country as a payment bank to cover poor families under Jan Dhan, officials said.
Last year, the finance ministry had stalled the move to convert post offices under India Post into a bank even as the RBI supported the move.
Banks have around 85,000 branches across the country. Consequently, they have till now been able to cover only two-thirds of Indian families. A third of the Indians, including half of farming households, remain unbanked.
Brazil saw more than 10 million bank accounts being opened between 2002 and 2011 after its postal department established Banco Postal in partnership with an existing financial institution.
India has around 150 million postal savings accounts, which are being seen as potential customers of the Jan Dhan scheme.
The postal department, which has been pushed into oblivion in the last two decades by private courier companies and the spread of the Internet, is suffering an annual loss of over Rs 6,000 crore.
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 a large part of the country where bank branches are absent.
-The Telegraph, Calcutta
