Planning Commission objects to Government funding for India Post Bank

The panel opines Rs 500 crore needed as initial paid up capital for launching Post Banks might not be feasible at present. Hopes of the Department of Posts (DoP) to launch full-fledged banking operations seem to have hit a roadblock, with the Planning Commission opposing government funding to start the project.

The DoP has moved a Cabinet note for the government to provide Rs 500 crore as initial capital to India Post towards starting a bank. According to the Reserve Bank of India (RBI)’s norms for applying for a new banking licence, an entity needs paid-up capital of at least Rs 500 crore.

Officials said the commission felt providing the Rs 500 crore needed as initial paid-up capital for launching the bank might not be feasible, owing to the tight fiscal conditions. “Though in principle, the commission does support the proposal, the current weak financial conditions are acting as a hindrance,” said a senior official. 

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Overall, the department needs about Rs 1,900 crore to run full-fledged banking operations. Financial help from the government is required, as India Post recorded a deficit of Rs 5,806 crore in 2011-12, 8.5 per cent lower than the Rs 7,899-crore deficit the previous year. An official said India Post planned to start banking operations across 50 branches. However, a section within the Planning Commission felt converting a part of post offices into full-fledged banks would hamper the core functioning of these entities, another official said. For the government, India Post’s banking operations would be beneficial in expanding the ambit of its ambitious Direct Benefits Transfer (DBT) programme. This is because there are about 1,50,000 post offices across the country, much higher than the number of all public sector bank branches combined. The banking correspondent model, as envisaged in DBT, would be accounted for by postmen. For every new deposit, a postman would get an additional commission of 0.07 per cent.The official said moves were also afoot to link all post office branches with core banking solutions. To launch banking operations, India Post would have to restructure its shareholding, as according to RBI norms, promoter companies of entities seeking to set up banks should have at least 51 per cent public shareholding. Currently, India Post is wholly owned by the Union government.

A few years ago, India Post’s proposal to start banking operations was opposed by the finance ministry, as the DoP didn’t have expertise in areas such as handling credit.

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The DoP has a few savings instruments such as the post office savings scheme, as well as a life insurance scheme — Postal Life Insurance. It also acts as a distributor for mutual fund companies.

Source: Business Standard, Saturday, August 3, 2013