Dear Comrades,
This hoary institution need not turn into a bank. But its rural outreach can help in financial inclusion.
India Post has not been granted a banking licence in the
current round of allocations. The Reserve Bank’s opinion is that the
issue needs more analysis and the Government needs to be consulted.
In
view of the fact that commercial banks have recorded high
non-performing assets, their earlier efforts at extending financial
inclusion cannot be easily replicated.
Therefore,
banks could now consider exploring possibilities with post offices, with
a spatial reach, a high level of public trust, a wide customer base and
generally well respected staff.
Letters from the past
The
Indian postal system has an illustrious history tracing back to the
origins in the Mauryan era. The modern postal system was established and
strengthened by Lords Robert Clive and Warren Hastings and the GPOs in
Calcutta, Madras and Bombay were established in 1774, 1786 and 1793,
respectively.
As of March 31, 2012, there were
1,54,822 post offices in the country, making it the largest network of
its kind in the world, of which 90 per cent were in rural areas. In
comparison, at the time of Independence, there were only 23,344 post
offices, most of which were in urban areas.
Historically,
the first postal account was opened in the UK in 1861 to encourage the
poor to save. The same began in India, soon after postal savings banks
started — in 1882.
Eventually, by 1896, post offices
were the sole savings bank agencies mobilising small savings. They have
been in the forefront of offering not only different types of banking
facilities such as time and recurring deposits but also offering
certificates of different denominations and social security schemes.
In India, there were nearly 24 crore account holders availing postal banking services at the end of March 2012.
In
contrast, there were nearly 90 crore deposits and 13 crore credit
account holders in commercial banks of which 28 crore deposits and 4
crore credit account holders spread in 35,936 rural branches accounted
for 9.4 per cent and 7.9 per cent, respectively of the total amount of
deposit and credit of commercial banks.
Financial inclusion
To enhance financial inclusion, post offices with significant presence in rural areas offer promise.
But
to achieve that, should India Post metamorphose into a commercial bank
or explore possibilities with banks suffering from sagging assets?
Internationally, there are a few countries which have tapped the postal institution for extending financial inclusion.
For instance, in Brazil, financial inclusion got a boost after Brazil Post formed a partnership with financial institutions.
Some
countries have even offered a banking licence to their post offices
(China, France, Morocco), while in some other countries banking
institutions have made working arrangements to offer services through
the post offices (Algeria, Italy and the UK).
However,
some of the important criticisms against making a bank out of postal
institution are lack of technology, different work culture and
experience, and staff constraints such as skills, training and computer
literacy levels.
In India, the contribution of small
savings, despite concerted efforts by the Government since 1951, has
been comparatively small compared to deposits with commercial banks,
mainly because of the lack of ability to save and financial literacy
amongst the segment of the population which banks with post offices.
Converting
post offices into banks would not change that situation. Incidentally,
nationalisation of banks — in 1955, 1969 and 1980 — was initiated to
enhance banking penetration in rural areas, but that did not meet with
significant success, given the work culture and skill levels of banking
staff.
Saving more
However, the need is to
inculcate banking habits in the rural unbanked population. For that
existing infrastructure in post offices could be usefully explored
successfully in different ways.
Since there are fewer rural bank branches than post offices, the costs of transacting business with banks are fairly high.
Banking
services available at post offices, through time-specific extension
counters of major commercial banks in the local area or the presence of
business correspondents of banks, could reduce such costs and increase
banking penetration.
To initiate banking habits with
the rural population, post offices could start offering debit cards to
account holders of postal bank accounts as well as providing information
on those accounts through password protected internet portals.
Post
offices could also facilitate use of electronic cards, credit and
debit, for postal transactions for not only convenience of the user but
also to encourage the use of banking facilities.
This would enhance the financial literacy and awareness of banking services for the unbanked population.
Banks
could make arrangements with post offices for dealing with remittances,
as recommended by the Rangarajan Committee on Financial Inclusion in
2008. Similarly, banks could be invited to locate their ATM machines in
the premises of the post offices.
While the use of
plastic currency will make transacting easier and encourage banking
habits among the unbanked population, it will also monetise the economy
and help bring down the demand for currency notes and scarce coins
significantly.
India Post has touched the life of
every Indian. To preserve its heritage and extend its glory, post
offices need not become banks, but could certainly consider a symbiotic
business partnership with commercial banks to enhance financial
inclusion and mobilise deposits.
The writer is RBI Chair Professor of Economics, IIM Bangalore