Wednesday, June 19, 2013

India Post’s bank plans meet hurdle

The Department of Financial Services (DFS) has opposed the proposal of the Department of Posts (DoP) to apply for a banking licence. According to the DFS, though the network of post offices is large with 1.55 lakh offices across the country, they neither have an interconnected system in place to give people access to their money anywhere and at anytime like the banks, nor experience in lending.

“A Cabinet note is being circulated by the DoP for them to apply for a banking licence. But we are against the move,” a senior DFS official told FE.

The DoP wants to start a bank initially with at least 40-50 branches – with one or two in each state – with a focus on lending to small and medium enterprises and gradually over a period of ten years increase the branch network to around 800 by going into rural areas. According to the RBI guidelines, the initial minimum paid-up voting equity capital for a bank should be Rs 500 crore, while the DoP has sought a capital of Rs1,900 crore for its banking venture, sources said.

The DFS official, however, said the DoP's plan seems “half-baked” as it was “not clear on how they will evolve a system like the banks have to help their depositors access money easily anywhere at anytime.”

“Banking is a different ball game altogether. It will require a lot of training for the post office staff to learn the rules. It will not be easy for DoP to run a full-fledged bank,” the official said, adding that a lack of experience in lending is also a drawback for the DoP.

The DoP, however, is keen to submit its application to the RBI before the July 1 deadline and the bank will be set up a through a wholly-owned Non-Operative Financial Holding Company (NOFHC). The DoP had taken the help of consultancy firm Ernst & Young in preparing its strategy. “The main benefit (in giving a bank licence to DoP) is that it will help boost the financial inclusion plan,” said Ashvin Parekh, national leader (global financial services), Ernst & Young. The Cabinet note was prepared on the basis of the Ernst & Young report.

The DoP intention is not to convert all its post offices into banks, but wants a separate banking entity for which it has decided to hire a separate team of professionals, sources said. It has already spent around R200 crore in the last four years to put up a core banking solutions-like system in place, they added.

Incidentally, the government had started a R4909 crore-worth information technology-driven project to modernise the postal network. The government had allocated R532 crore in 2013-14 to make post offices a part of the core banking solution and help it offer real time banking services.

The DoP also pointed out that the post offices reach even the remote corners of the country as the network includes 1.4 lakh post offices in rural areas, 15,000 in urban areas and another 30,000 points of presence. Post offices already offer many financial services for urban and rural people including savings accounts, recurring deposit accounts, monthly income schemes, public provident fund, time deposits, senior citizens savings scheme, national savings certificates and postal life insurance. Besides, post offices also offer money remittance services, distribution of mutual funds and securities and are also provide electronic international money order service and forex services.

The DoP also provides services on the new pension scheme and retail services such as sale of forms and bill collection. The DoP is also a government agent for providing services on Mahatma Gandhi National Rural Employment Guarantee Scheme wage disbursement and old age pension payments.

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