The Indian Postal Service (India Post) has a famed history of 150 years. Operating under the Ministry of Communications and Information Technology, it has touched the lives of millions of Indians as a carrier of mails, an agent for collection of money under various types of small savings deposit schemes, provider of life insurance cover under Postal and Rural Life Insurance (PLI and RPLI) and delivering various other services like remittances, sale of forms, etc.
The extensive network of more than 1.5 lakh post offices that link India’s geographical extremities (as against the approximately 22000 branched of SBI, the largest PSB ) earns India Post the distinction of being a service provider with an enviable reach to the grassroot level as a last mile connect. Out of the said network, about 90% of the post offices serve the rural and semi urban areas of India. This huge network is manned by about 1.9 lakh departmental employees and 2.5 lakh Gramin Dak Sewaks who are largely the feet-on-the-street.
Though Sher Shah Suri, the founder of Sur dynasty in the mid sixteenth century is accredited with the initiation of the postal system in Indian subcontinent, it was institutionalised under British rule. Since then, the postal service has gradually grown to cover the length and breadth of the country, having divided the entire country into 23 postal circles and 49 zones. In a way, this logistical behemoth is capable of delivering services to the doorstep of the customer located at the remotest corners of the county.
Globally, the development of courier service and internet connectivity proved to be two of the major disruptors for the postal service. Indian Post also felt the heat in the ‘90s while the communication gradually started migrating to electronic alternatives. Additionally, Indian masses took to the expedient courier service in a big way. The operational income took a hit and the organisation initiated search for new business lines and models. With the paradigm shift in the business environment newer opportunities emerged. While several new initiatives were being taken by India Post from the mid millennium, the 2014-15 Union Budget’s speech by the then Finance Minister presented on July 10, 2014, seemed to be the potent force behind creating the India Post Payments Bank (IPPB). The FM gave a policy nudge to the RBI when he said, “... RBI will create a framework for licensing small banks and other differentiated banks. Differentiated banks, serving niche interests, local area banks, payment banks, etc. are contemplated to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant work force.”
In this context, it may be mentioned that, earlier, on August 27, 2013, the RBI placed a policy discussion paper termed as “Banking Structure in India – The Way Forward”. One of the observations in the discussion paper was that, there is a need for niche banking in India, and differentiated licensing could be a desirable step in that direction. Scheduled commercial banks had approximately 71% access to the credit supply and predominantly relied upon extended credit services, were often found wanting in their deliveries to rural areas due to high costs for originating and servicing small-ticket loans. While an universal banking model is always preferred, there is always a requirement for smaller banks which may not operate in the full service banking format like the universal banks but can address specific sectors like infrastructure financing, micro lending, retail banking and others in a better way and that too in unbanked and under-banked territories of the country.
The RBI Report of the Committee on Medium-term Path on Financial Inclusion (December 2015) also recommended creation of payments bank and the establishment of a ‘Business Correspondent’ model that can help bridge the ‘last mile’ service delivery gap. The Indian Post was a natural choice of the government to apply for Payment Bank licence which it successfully secured from RBI on August 2015. The network of offices, which has been connected on a real time basis with a strong IT backbone, the dedicated team of postmen, the ready-to-use knowledge and expertise in handling retail financial transactions and most importantly, the social connect that the organisation has built up over the decades were the key features that attracted this decision.
IPPB started its operations on January 30, 2017, by opening two pilot branches, one at Raipur and the other at Ranchi. It proposes to open another 650 branches to cover almost all the districts of the country in next few months. The government is very serious about this new service entity and it has already committed Rs. 500 crore for the FY 2017-18. In all likelihood, the space available in the existing post offices will be shared as IPPB service points and that way there will be a financial synergy.
On the service front, IPPB will offer the CASA but as per guidelines of RBI, it will initially be restricted to holding a maximum balance of Rs.100, 000 per individual customer. Transaction can be routed through various channels including branches, Automated Teller Machines (ATMs), Business Correspondents (BCs), net and mobile banking. At the lowest level, the postmen and Gramin Dak Sewaks (GDS) will take the service to the doorsteps. Third party products like loans, insurance (postal and that of other insurers), investments (Mutual Funds / Bonds) and the post office small savings schemes will form the initial offering basket of IPPB. Direct benefits transfer under MGNREGA, scholarships and various other social subsidies and collection of utility bills will be the two other offered services.
A number of countries around the globe have already experimented with the postal banking structure and as per the report titled ‘Postal Financial Inclusion 2016’ and published by the Universal Postal Union, “Since creation of the first Postal Savings Bank in Great Britain back in 1861, postal operators have been key players in financial inclusion worldwide, in small and large countries alike. At the global level, out of a total adult population of approximately 5.4 billion people worldwide, 1.5 billion or 28% have access to some form of financial services (remittances, government payments, insurance, current accounts, savings, etc.) through a postal operator. Among these, 1 billion people – or 19% of the world's adults – hold a current or savings account with a postal service provider.” Taking a cue from the global experience, we should also look forward to our own IPPB, which has the tagline “Aapka Bank, Aapka Dwaar.” We will wait for new doors and vistas to open up as IPPB has the potential to be the front runner in setting service standards for payments banks in the days to come.
— The author is the Chief Manager – (Operations & Risk Management) Peerless Financial Services Ltd.