A task force set up by Prime Minister Narendra Modi to review the operations of India’s postal department has mooted the creation of a full-fledged Postal bank.
The panel is headed by former cabinet secretary, TSR Subramanian and comprising of experts that includes former Infosys board member TV Mohandas Pai,
The recommendations will be submitted to the government soon, according to a government official in the know of the development. In fact, the task force has recommended to launch the proposed Post bank through an Act of the Parliament and not by approaching the Reserve Bank of India (RBI).
“The task force has is not in favour of permitting India Post to run a payments bank but wants the department to run a full-fledged commercial bank, which it believe will help push the cause of financial inclusion in the country,” the official said.
An announcement in this regard is likely to be made as early as Thursday at Dak Bhavan, the headquarters of department of postal services in Delhi, the official said.
The task force, set up in August, has also made several other recommendations to leverage the vast network of India Post and its local knowledge across regions in India, the official said.
For India Post, which has been cherishing the dream of becoming a bank, the Subramanian panel recommendation will be a huge boost for its demand for a full service banking permit.
The Postal department, which was among the 25 contenders for a full service banking licence last year, didn’t get into the final list since the UPA government at the time wasn’t keen on backing the move and refused to provide the department with the minimum capital required to set up a commercial bank.
Last year, while issuing licenses to IDFC and Bandhan, the RBI had observed that India Post can be given banking licence if government, technically the promoter of the proposed Post bank, gives its nod.
India Post has argued that the department’s entry to banking can contribute massively to the cause of financial inclusion, or the process of spreading banking services to the unbanked population of the country, using its vast network of 1,55,000 post offices.
Of its total network, about 1,39,040 post offices are in rural areas. Going by a 2011 estimate of the postal department, about 6,000 people are covered on average by post-offices in rural areas and about 24,000 in urban areas.
Through its various saving schemes, Postal department handles deposits to the tune of Rs 6,00,000 crore.
As Firstbiz noted earlier, India Post’s entry into banking can be game changer in rural banking given the massive reach of Post in the far-flung areas of the country and local knowledge.
The department has already commenced the process of linking all its branches through technology, besides setting up ATMs across the country.
The development has come at a time the RBI is opening up the banking sector to differentiated banks or banks with specific areas of focus such as payments banks and small banks. Payment banks can engage in accepting small deposits, offer ATM/debit cards, payments and remittance services through various channels. They can also offer financial products like mutual fund units and insurance products.
Small finance banks, on the other hand, are almost like full service commercial banks. However, these banks cannot engage in large value transactions since 75 percent of their loans must be lent to the so-called priority sector. For existing banks, this requirement is 40 percent. Also, at least 50 percent of their loan portfolio should constitute loans and advances of up to Rs 25 lakh.
India Post, however, is not keen to set up a small bank or payments bank and, instead, wants a full service banking licence, the official quoted earlier said.
Prime Minister Narendra Modi is expected to review a report on the revival of India Post soon.
Official sources said that Minister for Communications and Information Technology Ravi Shankar Prasad has approved the task force report and will submit it to the prime minister for a review.
The task force had submitted its report to Prasad in December, recommending division of India Post into five verticals, including one each for banking, insurance and e-commerce, with India Post being the holding company.
“The minister is expected to meet the prime minister on Wednesday for an in-principle approval. The task force has highlighted priority areas, which would give a fillip to our postal department,” an official told BusinessLine.
The Centre is also investing ₹5,000 crore for IT modernisation in India Post.
He said priority tasks include providing banking and insurance services to the public and making e-commerce companies such as Amazon, Flipkart and Snapdeal use India Post’s services.
“The main purpose is to utilise the network in line with the Prime Minister’s vision of reaching rural areas for financial services through innovation and digital connectivity instead of mere postal services,” the official added.
The task force, chaired by former Cabinet Secretary TSR Subramanian, was set up by the Prime Minister last year.
The idea was to leverage India Post’s wide reach across India.
Snapdeal has already partnered with India Post to work on bringing thousands of weavers and artisans from Varanasi on its website. The online company has launched a pilot with India Post to set up facilitation desks at Varanasi post offices to enable local weavers to sell their products on its platform.