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.
