Dear Comrades,
No matter how many times a bad idea is killed in India, it has a way of
resurfacing in some form or the other. Despite being shelved several
times over the last two decades, the idea of a Post Bank of India never
dies a complete death. It is re-emerging, this time riding the catch-all
justification called "financial inclusion".
That even a business-literate newspaper like The Economic Times is now
championing the idea is indicative of the inherent attraction of the
flawed your-beauty-and-my-brains logic. Hey, I have 1.55 lakh branches,
and you need financial inclusion. So make me a bank.
In an editorial today
, the pink daily says: "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."
Look at the logic closely and what the editorial is saying is this:
India Post has a lot of real estate in villages and financially excluded
places, It is already taking in deposits, so it is ready to become a
bank.
If it were that simple, any retailer with real estate in the right
places should be ideally positioned to become a bank. How about Bata as a
semi-urban bank? Why not every rural police station? Even better, they
could guard the cash better. There are lots of kirana stores in rural
areas. Why not give them a bank franchise?
We have to look at the real reasons that are driving this proposal to debunk the idea.
One, India Post is making losses. So we need a bank to bring in the profits. In this financial year, losses could top Rs 6,800 crore .
Counter-argument: If you can’t run your existing business well,
and costs escalate independently of revenues, how are you going to run
another business (banking), which you know nothing about, well?
Two, India Post's core business delivering letters and parcels
is gutted. This is because the profitable part of the business has
been taken over by private couriers. So India Post needs a new business
to run. So why not banks?
Counter-argument: If your main business is a losing
proposition, you either need to shut it down or seek a new idea that is
contiguous to it. If no one is writing letters, why not convert post
offices into cyber cafes, which print email? If email is the new
postcard, why not make email and letter-printing the new business of
rural POs? This may not bring profits, but will at least cut down
losses. But there could be even better ideas for leveraging India Posts
people and real estate.
Three, India Post is overstaffed. The department of posts has
4,87,621 people employed in it and it plans to spend over Rs 10,900
crore on them in 2013-14. A bank will presumably soak up some of the
excess staff.
A modern bank needs completely different manning and automation levels,
and if these skills are available more in urban areas, you won't be able
to get competent people to serve time in villages
A modern bank needs completely different manning and automation levels,
and if these skills are available more in urban areas, you won't be able
to get competent people to serve time in villages.
Counter-argument: There is no way bureaucratic post office
personnel can become modern bankers, at least not all of them. A modern
bank needs completely different manning and automation levels, and if
these skills are available more in urban areas, you won't be able to get
competent people to serve time in villages. The answer to overstaffing
is not a new business, but humane forms of retrenchment.
Four, there is the financial inclusion argument we talked about right at the outset.
Counter-argument: Financial inclusion does not mean you become a
bank. You can team up with an existing bank or many banks and make
them pay rent (or share profits) for the space they occupy in rural post
offices. This is a risk-free way to leveraging 1.55 lakh post offices
for financial inclusion.
Five, there is the point that post offices anyway run deposit
schemes, so why not make them give out loans as well? Like a
full-fledged bank?
Counter-argument: Post offices are very poor at servicing
customers. Check with any post office and find out who likes doing
business there. People are forced to go there only because that is where
tax-saving schemes like NSCs and post office monthly income schemes are
sold. Also, it is easy to stash black money in post office savings
schemes.
Six, other countries have done it. Germany has a post office bank, and so does Japan. So why not India Post?
Counter-argument: These countries set up their post banks long
ago, and they also have better standards of governance and
accountability. We don't. Somebody doing something does not
automatically mean we should do the same.
What post offices may be competent at could be taking in deposits. There
may thus be a case for giving them a licence to become deposit-taking
institutions, without lending operations. This is way short of making
the post office a bank. Lending needs different skills including money
management, risk assessment, and the ability to monitor credit accounts
on a continuous basis. Post offices have no such skills.
However, if one accepts that even public sector banks have not been
particularly good at managing bad loans, and tend to lend money under
political pressure, post offices will be even more vulnerable since they
will be operating in rural areas where thugs and rural vested interests
operate. Unlike nationalised banks, many of which are listed, an
unlisted Post Office Bank of India will be continually under political
tutelage. What we will end up creating is yet another institution that
soaks up capital from the exchequer without any kind of public
accountability.
So what are the best options?
The best option is for the post office to team up with banks in specific
regions either for a fixed annual payment or even for free (government
owns post offices and banks, after all). If Bank of India teams up with
all post offices in Maharashtra to set up branches, you will
automatically have rural inclusion and better banking sense.
The second-best option is to allow the Post Bank of India to become a
"narrow bank" one that only takes in deposits, does limited cash
management, and invests wholly in government bonds but does no
commercial lending that can result in bad loans. This way returns will
be lower, but if financial inclusion is the goal, lower returns will be
acceptable. There will also be no risk of frequent government bailouts
or huge capital infusions every other year.
But as far as the depositor is concerned, it will be a real bank which
issues cheque books, and allows people to draw or deposit cash.
The worst option is to make Post Office Bank a real bank. It will be a permanent albatross around the taxpayer's neck.
moneycontrol.com
