Hope In The Hinterlands :
The recently-launched India Post Payments Bank can play a vital role in bringing the country's vast, unbanked population within the banking ambit.
India Post Payments Bank can play a vital role in bringing the country's vast, unbanked population within the banking ambit.
The humble post office just rolled out a tech-savvy entity. Last month, Prime Minister Narendra Modi inaugurated India Post Payments Bank (IPPB), providing a big push to the government's financial inclusion programme. IPPB is the third entity after Airtel and Paytm payments banks to get the Reserve Bank of India's (RBI) approval. It is also the second such institution after Airtel Payments Bank to commence operations.
Speaking after launching IPPB in New Delhi last month, Mr Modi had said: "With India Post Payments Bank, all underprivileged and common people in every nook and corner of the country will get doorstep-banking services. This has opened an avenue to fulfil our long-standing resolution of financial inclusion."
India Post's banking initiative has started operating 650 payments bank branches across the country, mostly in rural India. The payments bank will be targeting small-ticket customers, especially those having zero-balance Jan Dhan accounts. The postal bank is unlike the post office savings account, which has predominantly been targeting salaried account-holders. It is also not a retail bank which advances credit. Rather it is an easy payment enabler as well as a facilitator for transferring money.
IPPB offers zero-balance account with a maximum savings limit of Rs 1 lakh. By doing so, it will try to mop up small savings that rural chit funds have traditionally targeted. Deposits in any account that exceed Rs 1 lakh will be automatically converted into post office savings account.
The bank will be powered by a vast network of post offices across the country and almost 3,00,000 postmen, postwomen and Grameen Dak Sewaks. These foot soldiers of India Post, armed with smartphones and biometric devices, will enable basic banking services, such as deposits, payments and money transfer, at the doorstep.
India Post's new bank, which is wholly owned by the government, has been set up under the aegis of the Department of Posts. At launch, IPPB will have 650 branches, 3,250 physical access points and 11,000 doorstepbanking service providers. Gradually, the bank plans to have its presence in each district of the country, resulting in a total of 1,55,000 outlets -1,35,000 in rural areas and another 20,000 urban parts of the country.
IPPB offers three savings schemes and will create a base for small savings and a steady interest income for those savings. This is seen as a huge facility for the rural poor who generally do not have any regular income. Apart from offering savings account and current account deposits, IPPB will provide digitally-enabled payments and remittance services of all kinds between entities and individuals. It will also provide access to thirdparty financial services, such as insurance, mutual funds, pension, credit products and foreign exchange services, in partnership with insurance companies, mutual fund houses, pension providers, banks and international money transfer agencies.
The payments bank will use postmen to help deliver banking services and the huge network of post offices will provide enough muscle to the new
player. IPPB also plans to offer services through internet and mobile banking as well as through pre-paid instruments, such as mobile wallets, debit cards, ATMs, point of sale and mobile point of sale terminals. The bank will be training postmen and postwomen to enhance their soft skills for carry out banking operations efficiently.
About 50 years ago, Indira Gandhi, the then prime minister, had nationalised 14 private banks. One of the prime reasons for nationalisation was to spread banking across rural India. There were just around 1,000 rural branches in the first 20 years of independence prior to nationalisation. After nationalisation, rural banking and rural credit spread, and in the next 10 years after the grand exercise, India saw opening of 10,000 rural banks. In fact, both the White Revolution (record surge in milk production) and the Green Revolution (bumper farm production) took off with the advent of rural credit across India.
Ms Gandhi perhaps believed in banking among the unbanked, and agriculture credit and rural prosperity started growing after bank nationalisation. Banking among the unbanked was, however, not a socialist dogma. It was a theory proposed by renowned management expert C K Prahalad in his book, Mr Prahalad had said that if rural banks were opened across India and savings and credit facilities offered to them, the poor would then be saving tens of thousands of crores, which they paid as interest each year to moneylenders.
India had taken the right course in the first decade of nationalisation of banks. But somewhere down the line, the focus of spreading rural credit and prosperity seemed to get lost. Then came economic liberalisation, and it was private banks which held sway for some time.
But finally, the concept of financial exclusion prevalent in the Indian banking sector hit policymakers like a thunderstorm. Financial inclusion rightly became the pet programme of the previous UPA government. And the concept was given a broader dimension and huge impetus during the current Modi government with launch of Pradhan Mantri Jan Dhan Yojana.
India Post's banking initiative is a major step in the direction of achieving financial inclusion. In fact, IPPB and other operating and yet-to-start payments banks can play a vital role in mopping up rural savings at the bottom of the pyramid and bringing the country's vast, unbanked and under-banked population within the banking ambit.
Payments banks were a part of the RBI's strategy of offering differentiated banking licences. Since these entities would provide services to the most vulnerable segments of the population, the regulator placed a fair amount of restrictions on their operations. Importantly, these banks are not allowed to lend and needed to put most of the deposits they receive in government securities. Some applicants feel that such a strict mandate will make the payments bank model unviable. In fact, three of the 11 original licensees chose to give up their payments bank licences. The others are banking heavily on cross-selling of third-party products to make their operations profitable.
"IPPB will help address the lack of last-mile access to banking which has plagued India for decades," notes IPPB MD and CEO Suresh Sethi, who was earlier the head of Vodafone's mpesa business in India. Mr Sethi has all the right reasons to be optimistic about his payments bank pushing financial inclusion in a big way.
There are currently about 50,000 bank branches in rural India. The Department of Posts has almost 1,30,000 service points in rural India. By converting these service points into points of banking service, it is possible to extend presence of banking services across rural India by 3.5 times the current rate, adds Mr Sethi. It is now up to IPPB and other payments banks to take financial inclusion to the next level.
"IPPB will help address the lack of last-mile access to banking which has plagued India for decades." SURESH SETHI MD & CEO, IPPB
IPPB will be powered by almost 3,00,000 postmen, postwomen and Grameen Dak Sewaks.