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Friday, May 23, 2014

RBI governor Raghuram Rajan hints at bank licence for India Post

NEW DELHI: Reserve Bank of India governor Raghuram Rajan has backed the postal department's demand to set up a bank, even as the finance ministry has tried to block the move.

At the annual day lecture of the Competition Commission of India on Tuesday evening, the RBI governor, who is known for his candid comments, suggested that the 'Post Bank' could be given a limited banking licence that will be able to raise deposits and offer payment and remittance services. There will, however, be restrictions on investments and the entire amount would be have to be parked in government securities.

"...the proposed Post Bank could start as a payment bank, making use of post office outlets to raise deposits and make payments," Rajan said.

The suggestion came in the wake of a statement that RBI, while being cautious with new players, can be a little more flexible in allowing players to set up a small bank or to operate in only one segment of banking business. "Such differentiated licenses - licenses with restrictions on the geographical reach or the products offered by a new bank - can generate more organizational variety and efficiency. Small banks tend to be better at catering to local needs, including needs of small and medium businesses," the governor said, adding that consultations will be conducted with stakeholders on the issue.

The model could be a win-win solution for the RBI and India Post, and also address the capital-related concerns that the finance ministry has. For RBI, a payments bank model will help it tap into the post offices' extensive reach that goes beyond what even State Bank of India can offer. Compared to SBI's over 15,000 branches, there are over 1.5 lakh post offices across the country.

For India Post, it means that it can get additional revenue stream, learn the tricks of the trade and then hope to convert into a full-fledged bank later. It also comes with the advantage that lower capital may be required to sustain this model.
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