India Today - - UPFRONT - By M.S. Sri­ram

On Septem­ber 1, Prime Min­is­ter Naren­dra Modi freshly launched the In­dia Post Pay­ments Bank (IPPB), which was al­ready func­tion­ing on a pilot ba­sis in a few districts. It has been pack­aged as a path-break­ing ini­tia­tive, but chances are its in­cre­men­tal im­pact will be lim­ited. If the ob­jec­tive was to make a big push to­wards greater fi­nan­cial in­clu­sion of In­dian cit­i­zens, it would have been bet­ter to plan for a uni­ver­sal bank. In­dia Post did ap­ply for a uni­ver­sal bank licence—and this was also con­tained in the T.S.R. Subra­ma­nian com­mit­tee re­port—but nei­ther the gov­ern­ment nor the Re­serve Bank of In­dia (RBI) was favourably in­clined. One won­ders if it was, then, a Freudian slip when the prime min­is­ter in his in­au­gu­ra­tion speech said that the post­man would now be giv­ing loans.

The pay­ments bank space has been con­tentious. There were more than 40 ap­pli­cants, of which 11 play­ers got an in-principle licence to set up the banks. Three of them with­drew early on, and two of the new banks are un­der sanc­tions from the RBI for mal­prac­tices. None has es­tab­lished a buoy­ant busi­ness model. How­ever, IPPB is dif­fer­ent, not only be­cause of its own­er­ship but also be­cause the postal net­work was al­ready en­gaged in these ac­tiv­i­ties— col­lect­ing small savings, sell­ing in­sur­ance and third-party prod­ucts, and han­dling money trans­fers. Given the pos­si­bil­ity of lever­ag­ing the for­mi­da­ble net­work at its dis­posal, this looks like a model that has a hope of sur­viv­ing. The launch seems to in­di­cate that there will be close co­or­di­na­tion with the postal depart­ment in day-to-day op­er­a­tions—with pro­mo­tions fea­tur­ing the post­man—and it ap­pears that de­posits in ex­cess of the Rs 1 lakh limit for IPPB Savings Ac­count will be au­to­mat­i­cally swept into the Post Of­fice Savings Ac­count.

Here’s the catch: IPPB is a new com­pany with its own cap­i­tal base, lim­ited li­a­bil­ity, li­censed and su­per­vised by the RBI and wholly owned by the Gov­ern­ment of In­dia. It will work as per norms and col­lect cur­rent and savings de­posits. At the same time, the postal depart­ment will also con­tinue its own savings mo­bil­i­sa­tion, which in­cludes savings de­posits, re­cur­ring de­posits, term de­posits, the PPF (Pub­lic Prov­i­dent Fund) ac­counts and var­i­ous savings cer­tifi­cates. The de­posit limit for the IPPB ac­count is Rs 1 lakh per customer; for the POSB ac­count, it’s Rs 4.5 lakh. Is there an in­her­ent con­flict be­tween the POSB ar­chi­tec­ture and that of the IPPB?

The de­posits of the postal depart­ment are used to fund the bor­row­ing pro­grammes of state govern­ments. If the same postal in­fra­struc­ture is used to raise IPPB de­posits, will it di­vert de­posits un­der Rs 1 lakh from the postal depart­ment to the IPPB? Will that can­ni­balise the small savings that the post of­fices have been rais­ing? It is an im­por­tant ques­tion given the scale of op­er­a­tions of the postal depart­ment, which col­lects the largest vol­ume of de­posits next to State Bank of In­dia. De­posits with the POSB stood at Rs 6.8 lakh crore in March 2017. This is not a small amount, and if a large part of this moves to IPPB, where will it be in­vested? If the trea­sury func­tion moves to­wards the pa­pers of the Union gov­ern­ment, which in all like­li­hood it will, what hap­pens to the fund­ing of the state govern­ments through the small savings of the postal depart­ment?

Un­like other pay­ments banks, IPPB raises pe­cu­liar ques­tions be­cause of its own­er­ship and po­ten­tial size. Is this an in­vol­un­tary move to­wards greater cen­tral­i­sa­tion of re­sources? Does that raise ques­tions about co­op­er­a­tive fed­er­al­ism? These are im­por­tant is­sues to pon­der. While there might be no sin­is­ter de­sign here to de­prive the states of their share of funds from the mar­ket, the model might ef­fec­tively trans­fer de­cen­tralised re­sources to the Union. At scale, it will be in­ter­est­ing to watch how this is ne­go­ti­ated.

Un­like other pay­ments banks, IPPB raises pe­cu­liar ques­tions be­cause of its own­er­ship and po­ten­tial size. Is this an in­vol­un­tary move to­wards greater cen­tral­i­sa­tion of re­sources?

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