The report, “India Post, 10 entities get nod for payments banks” (Aug.20), may create the impression that this marks the beginning of a new era in banking. The objective is to deepen financial inclusion by providing small savings accounts and payments/remittance services to low-income households, small businesses and other unorganised sector entities. Moreover, these banks are not allowed to undertake lending activities. This would definitely constrict their ability to generate a profit as they will have to invest their funds in approved securities that offer a relatively lower return. The banks are expected to set up branches in unbanked and under-banked areas, with the target group primarily being individuals with low savings. It will be a challenge to attract deposits in areas where savings are low, yet try to remain economically viable. In the Indian context, the cost of operating banks is very high with a major chunk going into overheads and salaries. From Day 1, payments banks will also have to manage low-value, high-volume transactions — all this with a lean workforce and high-end technology — while remaining Basel III-compliant. History has shown that a low volume of business does cast a shadow on the future of local area and regional rural banks.
Manickam Ravindran,Nagercoil
The RBI’s approval is a step in the right direction for financial inclusion. In fact, the Prime Minister’s earlier programme, Jan-Dhan Yojana, could have waited till such an approval. India Post, with its network of branches that already serve as small banks, can be of great help. Also, it will help the other social security plans related to pension schemes.
A.V. Narayanan,Tiruchirapalli
