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Postal bank test awaits new govt

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  • Published 21.04.14
Debate continues

New Delhi, April 20: The high profile spat between the Reserve Bank of India and the finance ministry over converting India’s loss-making 1.54 lakh post offices under India Post into a bank is likely to be one of the challenging issues that the next government will have to handle.

Top officials said the North Block would prepare a concept note for the next government on the pros and cons of allowing India Post to float a commercial bank. The issue bears directly on financial inclusion, which is a priority of all political parties.

The department of financial services has been put on notice by the RBI that a postal bank has not been ruled out by it despite the finance ministry’s refusal to grant permission to consider the licence application. The RBI has said it may “consider” the application of the postal department for a licence “separately in consultation with the Government of India”.

The department of posts had applied for a licence to the RBI, which was believed to be favourably disposed towards the idea despite initial reservations.

However, the finance ministry, on behalf of the government, had to agree to the application being processed. A turf war between the North Block and Sanchar Bhawan, which houses the ministry of telecommunications and posts, ensured that the approval never came.

New players

Earlier this month, the RBI gave licences to IDFC and Bandhan. IDFC is a non-banking finance company promoted by state-run entities, while Bandhan is a Calcutta-based NGO involved in financial services.

The postal department, which has been pushed into oblivion by private courier companies and the spread of the Internet, is suffering an annual loss of over Rs 6,000 crore. However, post office savings schemes and money orders remain popular, especially in rural areas where bank branches are absent.

Rural post offices account for nearly 90 per cent of the postal network.

“As financial inclusion, which means bringing payment and lending windows to rural India where banks have been hesitant to penetrate, will remain an important objective for any government, the idea of Post Bank remains one that has to be looked at seriously,” officials said.

US strategy

The US is also considering converting its postal department into a bank for the same reason. A quarter of the US population remains unbanked or underbanked. This means they either lack a current or savings account, or they have one but still use alternatives such as cheque-cashers and payday lenders.

Indians suffer from being unbanked to a greater extent. Around 40 per cent of Indians, including 51 per cent of farming households, remain unbanked.

Nearly 60 per cent of the post offices in the US are in rural hamlets or small towns with either a single bank or none at all.

Officials said they did not have the corresponding figures for India but estimated that the percentage of rural and semi-urban areas with no bank branches but a post office would be far higher.