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 Business Journal - - CONTENTS - IBJ BU­REAU

The re­cent­ly­launched

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.

Vast spread

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.

Last-mile ac­cess

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.

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