POV: INDIA POST PAYMENTS BANK
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?