However, with RBI’s licence comes the condition that India Post cannot accept deposits of more than Rs.1 lakh per account. Earlier, DoP had a self-imposed constraint of not allowing group or institutional accounts, official capacity accounts, or security deposit accounts. The payments bank licence has formalized this constraint. If DoP decides to transfer its entire banking business to India Post, it may face issues in cases where accounts have deposits in excess of Rs.1 lakh. There are several such accounts. As a result, there will be a parallel business being conducted by DoP for large accounts and by India Post for other accounts, creating inefficiency and confusion. Therefore, restricting deposits to Rs.1 lakh per account will hamper the efficiency and viability of the business.
If the payments bank of India Post enters into a business relationship with any established commercial bank, RBI’s approval will be required. There is no gain for either DoP or India Post when commercial banks directly use the services of post offices as business correspondents. The current measure of granting payments bank status only to India Post is not likely to make any difference to any stakeholder.
What could have made a substantial difference? A bold and aggressive approach on the part of RBI would have gone a long way to create an impact on financial inclusion. Opening a bank account is only a necessary condition to achieve financial inclusion. The sufficient condition is to ensure that all needy households get adequate institutional credit and appropriate insurance cover at affordable costs. In remote rural areas, the only extensive network with enough experience in financial matters is the network of post offices and postmen. As against a total of less than 40,000 branches of all scheduled commercial banks, DoP has a network of 140,000 post offices in rural areas. On an average, a post office serves 8,100 persons six days a week. Such an extensive and intensive network gives it a unique advantage in reaching the last mile to deliver any financial service. The report submitted by the Taskforce on Leveraging Post Office Network provided concrete measures for taking advantage of this network.
It would have been desirable if India Post was allowed to provide limited loans to its rural clients for meeting their productive needs. If there were concerns about risk of default, the amount of the loan could be restricted to Rs.50,000 or Rs.1 lakh as per case. There could be an appropriate conditionality for subsequent loans to the same person. The experience of such commercial banking for a couple of years would have enabled India Post to improve its operations and become a major player in rural areas. It would then prove to be an effective instrument for financial inclusion. In short, an organization like India Post with access to the vast network of post offices should have been considered not only as a payments bank, but also as a bank with limited credit operations to address the national goal of financial inclusion.
Moreover, DoP already provides postal life insurance, which was introduced way back in 1884, and rural postal life insurance, introduced in 1995. If another separate corporate entity can be hived off from DoP to offer all insurance products on commercial terms, it has the potential to expand its product portfolio, including crop insurance and health insurance. Again, the network of post offices can be tapped effectively to extend such crucial financial services to the neediest but underserved segments of rural India.
Similarly, other commercial activities of DoP such as e-commerce, distribution of third-party products, e-services and provision of various government services should also be hived off into separate subsidiaries with independent boards of directors. The traditional mail operations and remittances constituting the basic communication services that the state is expected to provide to the people should continue to be with DoP as a departmental undertaking of the central government. A corporate structure for DoP may allow different wholly-owned subsidiaries to carry out specific commercial activities, utilizing the network of post offices on a rental basis. This would enhance the quality of services provided with cost-efficiency and commercial viability.
Article by : Ravindra Dholakia (Teaches economic environment and policy at IIMA. He was a member of the Government of India’s Taskforce on Leveraging Post Office Network. He was also a member of the Sixth Central Pay Commission.)
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