India Post (Bharatiya Dak) is the trade name of the world’s largest and well connected door-to-door postal service generally referred as post office in India. The postal service was started by the British in 1774 in selected presidencies in India (Bombay, Calcutta and Madras). But the today’s post which we know was established under the Post Office Act in the year 1854. A long journey of over 240 years, India Post has kept its relevance by moving with times by introducing Life Insurance Services, Savings Bank Accounts, etc… In this post I would like to discuss about the most deserving payments bank license awardee, India Post, its journey to win the payments bank license.
Network of India Post
India Post has a vast network of 1, 54,882 post offices in the country, of which close to 90% of the post offices are located in rural areas (1,39,182) and little over 10% in the urban centers (23,344). It has a large footprint of covering on an average of 6,000 people per post office in rural areas and close to 25,000 people in urban areas. Some hamlets in India are still unbanked by any major bank, so the post office offers their financial services to these people too…
Services they provide
India Post is very well known for providing various facilities to its customers. Some are listed below
- Door-to-Door post delivery.
- Savings Bank Accounts(Custom Made exclusively for India Post account holders)
- Recurring Deposit, Fixed Deposit savings Instruments
- Postal Life Insurance Policies
- National Savings Certificate
- E-Commerce Product Delivery(Has tied up with various ecommerce companies for last mile delivery of their products to their clients)
- Utility Bill Payments.
- NREGA wage payment to the workers from the government(Discussed below)
National Rural Employment Guarantee Act 2005 was started by the Congress-backed UPA government on February 2nd, 2006. Renamed as MGNREGA, is the world’s largest employment program, in which a member of a family is guaranteed 100 days of on-time paid work.
But the UPA government couldn’t trust the takedars (supervisor) to pay the wages on time to the workers. While they were working out a method, India Post extended support to the scheme (including door-to-door payment delivery system); they paid the wages on-time to the workers through their large network of post offices.
The government like MGNREGA had initiated many social pension schemes where the payment to the pensioner is done by India Post (door-to-door payment delivery system). Some listed are
- Indira Gandhi National Old Age Pension (Started in August 1995). This scheme was started to give pension to individuals above the age of 60.
- Indira Gandhi National Disability Pension Scheme (Started in 2007). This scheme was initiated to provide pension to the disabled poor above 18 years of age.
- Indira Gandhi Matritva Sahyog Yojana (Started in 2010). A wage compensation scheme launched by the government in which a part of the wages are paid to mothers during pregnancy such that they can take care of themselves well and not worry about the wages they would lose during this period.
India Post has a vast network of post offices in the country and door-to-door postman delivery systems of products offered by India Post.
Before ecommerce delivery project, India post was posting a marginal loss and was in a debt for some years.
Amazon started its pilot project in 2013 with the India Post for ecommerce delivery which was a massive hit as it could provide services to 19000 pin codes in India compared to 5000 to 10000 pin codes by large private courier companies.
The post man are able to handle large value products for COD(Cash on Delivery) which shows that trust is a vital essence in the functioning of India Post. I have discussed below, for why I have discussed about trust in India Post.
Fully Fledged Bank
Having a large network of post offices in the country, the Department of Posts was considering converting its post office network into a fully fledged bank.
Perhaps this wasn’t a new novel idea. Countries like Japan, Germany, Australia, USA, etc… took steps to convert the existing post office network into a bank making them the major stakeholder in the financial inclusion program run by the government. Japan Post Bank has its shares traded at the Tokyo Stock Exchange.
Secondly the idea of converting India Post into a bank was in the pipeline since 1980s which is well before most post banks in the world came into existence.
But Department of Posts got serious about it in 2006 after realizing its debt had reached 1000 crore rupees.
They had applied for new commercial bank license in 2013 along with other 24 applicants but only Infrastructure Development Financial Corporation (IDFC) and Bandhan Financial Services could get the license.
The RBI was keen to grant the license by the government cited reasons why India Post wasn’t capable to running the bank. Some are
- Lack of staff in most post offices as over 60% post offices in the country are run by a single person at the post office and the other staff would the postman. So less staff won’t be able to handle banking services.
- There is no proper co-ordination of the post office with various departments run by the government neither with private firms thereby isolating themselves in a different world which is not acceptable while providing financial inclusion in a country like India where more than 2/3rd of the population is unbanked.
- The Post offices are not backed with technology well as more than 50% post offices don’t even have a computer system installed in the post offices.
- Post Offices don’t have the expertise to grant and manage loans neither to invest the deposits into lucrative schemes which return good profits. Even the world’s biggest deposit holder Japan Post Bank doesn’t grant loans to its customers.
- It requires a large capital of investment of around 2000 crore rupees of which most have to be drawn from the public investors or investment banks/mutual funds/Insurance companies as government had decided to fund 1/3rd of the required capital.
In my opinion (Shashank Kamath’s Opinion) they deserved the license in spite of the above cited reasons because:-
- When IDFC and Bandhan were granted in-principle licenses, IDFC never had provided loans to retail clients till date being mostly connected to Investment Banking neither did Bandhan provided small loans and not experienced to provide big loans. That’s a different story that Bandhan’s founder Mr. Chandra Shekhar Ghosh is a brainy planner who will help the government achieve its financial inclusion.
- We could take this as an example for India Post too. Having widest reach in India even more than combined branches of commercial banks, they could have received funds from the public through an IPO, hire some intelligent graduates who would manage loans and do the necessary smart investments of the deposits. Experience is not inherent, it is achieved by hardwork. It would be a great dream for any Indian graduate (even me…) to work in a government agency doing such a wonderful job. A new class of government jobs for the young youth.
- Co-ordination between post office can be developed now easily compare to the previous decades. Technology has taken a leap in such a way co-ordination between post offices could have been established with some months if all work hand-in-hand (Central and State Government).
- RBI could have trusted the post network at least on large network base. When new banks have the capacity to increase their bank branches, in which India Post has an advantage over private/public banks, just they have to upgrade to the modern technology.
- When large ecommerce companies can trust the India Post for their product delivery of large value, we Indians can trust the Postal Department on its credibility and business sense to run a fully fledged bank.
- We could and may see corporate type governance in the Department of Posts run by the CEO who oversees the functioning of Vice President, Sales and Marketing Department, Finance Department, etc…
Payment Banks: – A new hybrid bank keeping in mind that Post Bank of India can become a reality
In reality many post office networks in the world have been converted into a bank but the post bank had separate branches which don’t use existing post offices as bank branches.
Secondly, the government is worried what it should do with the deposits it is having since years from the public if India Post becomes a bank. All these problems were sorted out when a new class of banks were introduced in India as Payments Banks.
I have written a detailed analysis of Payment Bank, its structure on my blog. Check this link.
On a short note to sum up, payment banks can’t grant loans neither can they invest anywhere else other than government bonds; infrastructure required is low which can be managed by a small staff of 2 to 3 employees but the bank must be fully networked at its launch with majority of branches in rural unbanked districts in India, etc…
If we go to the point these were the major reasons why India Post did not receive fully fledged banking license as neither they had good infrastructure but well networked; they did not have the expertise to manage funds or grant loans, etc…
In my terms Payments Bank concept was developed well keeping in mind of the India Post limitations and widest reach.
I wish the Post Bank of India a very best for its bright future.
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I believed that I must involve myself in the government’s mission to covert it into a bank, so a selfie with India Post to salute its vision.