NEW DELHI: The government's earnestness to change the lives of millions untouched by high-street banks is being tested with a proposal from its own department of posts. Armed with an amazing network of offices, the department has sought Rs 1,900 crore from the Centre to launch a bank that would connect with the aam aadmi in Indian villages and far-flung areas where few institutional lenders have a presence.
Financial inclusion figures among the top priorities of the Congress-led UPA government. The postal department thinks it's best placed to meet the goal. Only 35% of Indian adults have bank account. The rural areas continue to be underserved, with 170-odd commercial and regional rural banks running just about 36% of their 93,000 branches in villages.
Compared to with this, of the 1.55 lakh post offices, 90% are in rural areas. With its 1.3 lakh gramin dak sevaks - or, village postal workers - the post office is in a position to provide the last mile link in villages that existing banks lack.
Like corporate houses aspiring to own a bank, the department has applied to the RBI for a banking licence. It's ready with a blueprint prepared by Ernst & Young which has been an advisor to many domestic and MNC banks.
In countries like Germany and the Netherlands, post offices have successfully metamorphosed into banks. The proposed Post Office Bank of India could be a separate entity carved out of the present set-up that sells saving schemes to 28 crore customers. The proposed banking entity would be incorporated as a company wholly-owned by the central government.
The aim is to leverage the extensive branch network and familiarity with the local population in reaching out to new customers and designing financial products that meet their needs. "This could boost the UPA government's efforts to strengthen rural livelihoods through self-help groups. At present, access to affordable credit is a major obstacle. Besides, a bank trusted by local communities would make it easier to implement the direct cash transfer scheme," said a person familiar with the plan.
One of the rules laid down by RBI requires a new bank to have 25% of its branches in unbanked rural centres.
The postal department has spelt out that it would adhere to "know your customer" or anti-money laundering rules that are applicable to banks. In order to obtain the services of the gramin dak sevaks, a legal contract has to be signed between the proposed Post Office Bank of India and the existing Post Office Savings Bank.
According to Ernst & Young, the postal bank would need 1,900 crore over five years to capitalise itself. Of this, 500 crore is for the seed capital or the minimum paid up voting equity capital required as per RBI guidelines. This has been provisioned for the project in the Twelfth Plan. The department of posts would like the Cabinet to sanction 1,300 crore to meet capital adequacy standards at the proposed venture and another 100 crore to hire people, consultants and put in place banking solutions. The proposal is currently under inter-ministerial consultation.
The plan is to begin with 50 branches and expand to 150 over five years. The department is currently implementing core banking solutions in its post offices to introduce centralised banking operations, net banking, e-banking and ATM for savings scheme customers. A technology platform could bring in synergies between the proposed bank and the existing network.
Besides funding, a Cabinet approval is necessary to set up such a bank that plans to use existing post offices and tap into the savings bank customer base for new businesses. Once the Cabinet gives a go-ahead, the RBI will have to take a final decision.
Source : http://economictimes.indiatimes.com
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