If RBI wants financial inclusion, India Post, with its large customer base and branch network, is the fittest candidate
India’s
central bank is set to open doors to a set of private and state-run entities in
the banking space in Asia’s third largest economy. The objective behind doing
this, almost a decade after companies were last allowed to float banks, is the
so-called financial inclusion or expansion of banking services in a nation of
1.2 billion people where 40% of the adult population still does not have access
to banking. If the Reserve Bank of India (RBI) were to choose one state-run
entity to do so, it should be 159-year old India Post. It had 154,822 branches
across the country as on 31 March, the latest data available, the largest for
any postal department in the world, and close to 90% of them—139,086—are in
rural India. This is more than four times the rural branches of Indian banking
system. As of June 2012, there are 165 banks in India, including 82 regional
rural banks, and collectively they have a branch network of 92,117. Roughly 36%
of it, or 33,367, are in rural pockets.
On
top of this, India Post has 573,749 letter boxes strewn around the country.
Imagine a situation where these letter boxes are doubling up as cheque
collection boxes; there will be a dramatic change in the banking landscape in
India. Using its network, India Post is capable of doing door-step banking even
in remote villages, pushing moneylenders out of business. On an average, a post
office serves an area of 21.23km and covers 7,817 people. In contrast, a bank
branch serves around 13,000 people.
When
it comes to number of accounts, India Post, however, lags behind the banking
system. It has some 238 million savings accounts against the banking system’s
810 million accounts but it’s much more than what any bank in India has under
its fold. The outstanding balance in all its accounts is little over Rs.6
trillion, more than half of the deposit base of the country’s largest lender, State Bank of India, and more than double of
India’s largest private lender ICICI Bank Ltd’s deposit liability. The banking
system’s deposit base is around Rs.68.4 trillion.
Apart
from mobilizing savings through various schemes, India Post also sells mutual
funds and pension products and offers remittance service from 205 countries
across the world through 9,751 post offices. It has tied up with Western Union Financial Services Inc. and MoneyGram International Inc. for this. The
government also uses post office accounts to route payments to beneficiaries as
part of the rural jobs programme and the direct transfer of subsidies. The
money raised by India Post goes into the so-called consolidated fund of India.
In other words, they are part of the government’s public debt.
With
this background, India Post should be the fittest candidate to establish a bank
if indeed RBI wants financial inclusion, as no other public or private entity
can compete with it in terms of reaching out to the rural masses. It is familiar
with the art of deposit taking; has personalized relationships with rural folks
who do not yet have access to Internet; and even though it does not directly
invest in government bonds, it will not have any problem in fulfilling the
statutory requirement of buying government bonds as it has been contributing to
the consolidated fund of India. All it needs is to convert part of it into
exposure to government bonds. Besides, it also has the infrastructure in place
for distribution of financial products.
The
argument that can go against it is its Rs.6,346 crore loss in fiscal 2012 as
its business dropped, with emails denting people’s letter-writing habit and
private courier firms taking away its market share. If it cannot hold on to its
own business, how can it run a bank? The main reason behind the loss is not
erosion in market share but the heavily subsidized services that it offers in
rural India. The subsidy varies between 66.66% in a normal rural pocket and 85%
in hilly, tribal and dessert tracts and remote villages. One would imagine that
the bank will not be forced to offer subsidized services under the so-called
universal service obligation.
If
it is allowed to run its banking operations only under commercial
considerations, it is bound to succeed with its existing customer base, branch
network and reach and expand banking services to every nook and cranny of the
country, which no other entity can do.
The
biggest asset of India Post is its customer base and branch network, which any
bank would have loved to own. Globally, commercial banks always eye the postal
department’s network, which comes in handy for reaching out to retail
customers. In 2010, Deutsche Bank AG took over the control of Deutsche Postbank AG by raising its stake.
Through this, Deutsche Bank added Postbank’s 14 million customers to its 10
million German private clients to become the country’s biggest private sector
retail bank. Headquartered in Bonn, Postbank was formed following the
restructuring of German postal services in 1990.
As
both the RBI and Indian government are keen on financial inclusion, India Post
could be a vehicle to do so, provided the government allows it to have a
professional management with expertise in banking and skill in technology. If
its lack of banking experience comes in the way, India Post should tie up with
a corporate entity and jointly seek the banking licence. State-run insurance
behemoth Life Insurance Corp. of India (LIC) in 2001 had
raised its stake in the Mangalore-based Corporation Bank from 12.26% to 27.02%. By doing
so, LIC could start selling its insurance policies through the public sector
bank and Corporation Bank started using LIC’s 3,000-odd branch network. India
Post could do much more for spreading banking services.
Tamal Bandyopadhyay keeps a close eye on everything
banking from his perch as
Mint’s deputy managing editor in Mumbai. He is also the author of A Bank
for the Buck, a book on HDFC Bank.
Source : http://www.livemint.com
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