Sunday, March 31, 2013

Financial inclusion: New Post Bank of India is an excellent idea

Dear Comrades,

The marginal cut in small savings interest rates on Monday turns the spotlight on the post office as a potential candidate for a new bank licence.

India Post seldom figures in the list of those reportedly vying for a bank licence, but its credentials fit the bill almost to a T. Consider. A prime reason for issue of new bank licences is financial inclusion. By that criterion, India Post is an automatic choice.

With close to 1,55,000 offices, a majority of them in rural and semi-urban areas, and 30 crore deposit accounts, India Post can do what commercial banks have tried to over the years, but with limited success.

It can bring vast unbanked sections of the population under the formal banking network. It already does virtually everything a bank does, except granting loans.

Most post offices are already computerised and interest rates on small savings have been partly deregulated, so there is no reason why it cannot upgrade its operations and take up the full gamut of banking operations.

There are enough examples all over the world, notably in Japan and Germany, of post offices successfully offering banking services. What about the strict norms laid down by the RBI for grant of new bank licences? Will India Post be able to make the grade?

It is advantageously placed on many counts: ability to meet the minimum paid-up equity (Rs 500 crore), a satisfactory "past record of sound credentials and integrity" with a successful track record of 10 years and, most important of all, it will be able to meet the requirement of having at least 25% of its branches in unbanked rural areas with a population of less than 10,000.

There is only one aspect where India Post might find compliance difficult: the requirement that the bank should be set up through a wholly-owned non-operative financial holding company.

But this is a problem it shares with stateowned banks, which calls for a common solution. It should certainly not be a stumbling block to creating a new Post Bank of India.
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