Wednesday, August 13, 2014

India Post may apply for payments bank licence

After failing to receive a full-fledged banking licence from the Reserve Bank of India (RBI) last year, the department of post is gearing up for a second innings.

Now, India Post is looking to set up a payments bank and is expected to put in fresh application, sources with direct knowledge of the matter said. 
“India Post may look at setting up a payments bank for which it will have to apply again, after which the RBI will go through its own process to assess whether or not it is eligible,” a senior government official told HT. The exercise could take a while, he added.
A payments bank can accept deposits and remit but cannot lend. The move would help in deepening the financial inclusion programme, sources added.
The government is grappling with the problem to delink post office savings deposits from its fiscal deficit management programme.

Interest rates on post office savings are administered by the government, unlike commercial banks, where interest rates are market determined.

If post offices are converted into banks, they will have to offer competitive interest rates to depositors. Besides it remains to be seen whether all bank deposits are offered tax treatment, similar to post office savings, once the postal department is given a banking licence.

While the RBI did not grant a banking licence to India Post earlier this year, it said that the postal department and the government should look at the issue separately.

The department, for the last few years, has remained in the red due to high operational costs. It has been losing business due to competition from private couriers, usage of mobile telephony and Internet. However, it has over 150,000 branches across India and most of them are in rural areas.

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