The government’s objective of achieving 100 per cent financial inclusion got a shot in the arm with the India Post getting the nod for starting payments bank as lenders brace for competition from what would be the single largest bank in terms of accessibility.
“This could be the proverbial game changer with regard to financial inclusion,” said Rudra Sensarma, Professor of Economics, Indian Institute of Management, Kozhikode. “The main challenge banks today face in financial inclusion is the lack of last mile connectivity.” With the government’s focus on financial inclusion, it is quite logical to convert India Post to a bank given its strong network pan-India (especially in the rural areas) and the huge franchise built over the years, said Karthik Srinivasan, Senior Vice-President and Co-Head, Financial Sector Ratings, ICRA.
The move can further aid the financial inclusion objective of the government and the RBI as more people can now potentially have access to a bank. With more people getting access to a bank, it could improve the efficiency of passing on the government-sponsored benefits to the beneficiary directly through their bank accounts. It can potentially improve financial literacy levels and also the country’s financial savings.
However, lack of technological upgradation and training of its personnel are likely to slow down the ambitious plans of the government to create “the largest bank in the world in terms of accessibility” that would also encourage the move towards a cash less economy.
The new entity would be known as India Post Payments Bank (IPPB), a public limited company under the Department of Posts, with 100 per cent Government of India equity.
As per the guidelines issued by the Reserve Bank of India (RBI), payments banks can accept deposits of up to Rs.1 lakh and sell insurance and mutual fund products.
Many multinational financial institutions had already evinced interest to join hands with India Post, which shows its acceptance worldwide.Lack of presence
The business correspondents model has not worked well and banks simply do not have the kind of presence required to target the vast unbanked population in the rural areas and even urban poor. However, India Post with its vast network of more than 1.5 lakh offices, 90 per cent of which are in rural areas, can aid in financial inclusion. This should be compared with about 1.05 lakh branches of all the banks in the country.Further India Post is a significant player in the domestic remittance business with experience in managing small savings deposits. In this context, it does seem a good fit for transformation into a payments bank, Mr. Srinivasan said. Since the license is for a payments bank, there are no concerns about credit appraisal and recovery.
“Given their long experience with various investment and monthly income schemes, providing deposit facility with ATM/debit cards would be simply an extension of their current services,” said Dr. Sensarma. Moreover, as a payments bank they can also cross-sell insurance and pension products, which is important to achieve financial inclusion.Staff training
However, he said, the staff need extensive training in handling these products - especially insurance and pension products - as they are different from the current financial products in India Post’s portfolio. They also need to be given incentives for selling the new products. Inadvertent misselling of sophisticated financial products to the poor customers could jeopardise this initiative, hence proper training is crucial.
The government may spend Rs. 400 crore on the proposal with Rs. 400 crore more coming from equity.