8:01 am - Thursday November 5, 2015

Modi’s New Year gift: With ATMs and all, ‘Post Bank’ is readying itself to serve the poor

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Things are fast progressing for India Post’s grand entry to banking industry.
As the latest step, on Tuesday, the NDA-government amended the Post Office Savings Bank General Rules, 1981 to permit select offices of Department of Posts to issue ATM cards to savings bank account holders and issue account statements, instead of the traditional passbooks.
Presently, the service will be limited to only those post branches, which are under the core banking solution (CBS) network. To put it simple, CBS makes possible real time operation of a bank account across all branches connected through the network.
That is the reason why a customer can transact in their accounts in any bank branches. Most Indian commercial banks have covered their entire branches under CBS.For India Post, only 676 post offices are under the CBS network out of its total 1.55 lakh branches. Hence the ATM/account statement services will be initially limited to those branches. However, the department is currently undertaking a project to cover more number of branches under CBS as part of its IT-modernisation programme, besides increasing its ATM network to 2,800 by 2015.
The point to be noted here is with the permission to operate accounts through ATMs and issue account statements instead of a post office passbook, India post has already almost become a bank, albeit, in small scale, and if one exclude the credit operations business. A customer can keep their savings, draw statements, withdraw money from ATMs like in any other bank.
India Post already manages deposits worth ove Rs 6 lakh crore under its various deposit schemes.
To offer credit, however, the department needs to set up a formal bank. Early this month, a task force, headed by former cabinet secretary, TSR Subramanian and comprising of experts that includes former Infosys board member TV Mohandas Pai, had mooted the creation of a full fledged post bank that can undertake all kind of business activities including credit like a normal bank, focusing on the poorest segments of the country.
But that process will take time, since such an avtar requires a fresh legislation and capital infusion from the government. The norms do not permit government entities to apply for a small bank licence.
But the postal department can certainly take the first step forward to realize the dream of ‘Post Bank of India’ by becoming a payments bank, permissible under recent RBI guidelines. The deadline to apply for payments bank is on January 16. Getting a payments bank licence will be cakewalk for posts, since RBI is already is in favour of its candidature to become a bank.
India Post was among the 25 contenders for a full service banking licence last year but didn’t get into the final list since the UPA government at the time wasn’t keen on backing the move and refused to provide the department with the minimum capital required to set up a commercial bank.
RBI issued licences to only two from the 25–IDFC and Bandhan—for the full service operations but had observed that India Post can be given banking licences if government, technically the promoter of the proposed Post bank, gives its nod.
If financial inclusion is the topmost priority of the government, post bank’s entry into the banking can immensely benefit the poor, much more than the ongoing Jan Dhan Yojana, where state-run bankers are kept at gun point to meet the magical target numbers (Rs 10 crore in seven months), that in many cases has ended up in free distribution of duplicate bank accounts to existing account holders with loose KYC norms.
Force-feeding financial inclusion to the poor and unbanked has hardly worked in India in the past as is evident from large number of dormant accounts under the massive no-frills account opening drive under the RBI and previous UPA-government. Instead, preparing the ground, where poor is given easy access to the formal financial system, can work better if the intent is the real inclusion.
And no one knows the unbanked farmer, vegetable vender or daily laborer in the villages more than the postman. They KYC process is already done and the villager will trust the Postman to keep his small savings than a brand-new bank.
Of its total network, about 1,39,040 post offices are in rural areas. Going by a 2011 estimate of the postal department, about 6,000 people are covered on average by post-offices in rural areas and about 24,000 in urban areas.
Through its various saving schemes, Postal department handles deposits to the tune of Rs 6,00,000 crore.
The department only needs to manage the fresh resources needed to undertake full-service banking operations; the infrastructure is already present.
As Firstpost has noted several times before, the entry of post to the scene can change the game in banking. May be, that’s the best gift Modi can offer to India’s poor in 2015.

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