The blog updates the case for India Post to be an effective instrument for financial inclusion after its digitisation through sympathetic eyes. As an ex banker, on feels that India Post is still far away from full filling the financial inclusion mandate. Firstly, the number of branches listed are not true but small part time presences in the rural areas, without any infrastructure worth the name. The IT initiative itself proposes to cover very small number of urban and semi urban branches with CBS. Secondly, the operations of post office are highly subsidised by the government every year thus it facing viability issues. Thirdly postal services is its core business where it is failing to compete with courier services, and where it will be called upon to concentrate more. Fourthly it requires corporatisation first if banking systems, procedures, risk mitigation competencies are to be developed. Fifthly,
its cash management capacities are poor. Sixthly, the aged manpower will soon face many challenges in computerisation itself, and converting them into bare foot bankers will be a big call to take. finally, let us give post office around five years to establish its CBS systems and procedure and only then revisit it to see if it is capable to carry the task of financial burden. The business correspondent model has already given us initially reach and let us protect from floundering which it will soon if not given necessary support.
Y P ISSAR
Ex Chairman Sarv UP Gramin Bank Meerut UP, and
Ex General Manager (financial inclusion)
Punjab National Bank New Delhi
Dear Mr Issar, thank you for your comment. I agree with you that there are several challenges before the post. However, digitizing and professionalizing will be of huge value to the millions of savers and users of the postal network. There is immense trust at the last mile in the post bank.
On the issue of public subsidy, most of India's banking sector is public. Priority sector lending is publicly funded. We need to get into the details of how it would cost the exchequer to digitize the post but am not sure it is a huge sum as compared to public funding for other financial sector objectives.
While India Post Bank may be able to ramp up deposit mobilisation and handle remittances, building up a lending portfolio with the present structure is going to be a Herculean task. Where it can contribute usefully is in mopping up rural savings and taking up the space that is today taken up by chit funds and dubious deposit mobilisation companies.
If it does get a license, it will probably: a) end up setting up a new institution altogether, b) some of the existing post office locations will be upgraded to bank branches c) deposit mobilisation will move to the new bank, d) shift some of the functions such as pension payments and Givt payments etc. into the bank. That will give it a deposit base and some income streams; however, lending activities from a financial inclusion perspective will take a while to build up.
Anjan, thanks for your comment. Indeed, besides credit, the post already undertakes a lot of financial services. In a recent speech by the RBI governor, it was alluded that the post might get a "payments bank" liscense. Which means that it would do the same things, but link to a core banking server, and offer an account that could be operated from a bank or an ATM anywhere. That would empower a post customer hugely.
You rightly point out the issues that will confront the Post as it evolves. Perhaps that is why the payment bank liscence, at least for a few years, might make more sense rather than a full fledged bank liscence.
Every issue has it's pros and cons.But on balance it would do good for the country to modernise the Post and give them the task of leading the charge on Financialnclusion.FI as a social and economic agenda will have to be lead by multiple agencies such as the banks,Posts, telcos, MFIs, SHGs,e-seva and CSC facilities. Am ecosystem of collaboration and complementarity requires to set up and synergised and not exclude any agency on the grounds of capacity issues. It;s Financial Inclusion and begs for Inclusive effort by all concerned and not by just few.The post office has about 300 million accounts out of which 200 or so would be 'unbanked' in the sense of the depositors not having a bank account. Cannot the banks think of leveraging on these whopping ,millions to reach out to thses unbanked people?