“India Post can play a big role in the fulfilment of the government’s
social objectives.” Picture shows a pensioner leaving a post office in
Byalahalli village, Karnataka. Photo: By Special Arrangement
Instead of hamstringing public sector banks with social schemes, it
is time to transfer many of these financial tasks to India Post.
Public sector bank employees are so overwhelmed by the
sheer number of government-sponsored schemes they are saddled with, that
they have begun to come up with parodies. One such spoof scheme is what
they have named the Pradhan Mantri Sishu Palan Yojana, where customers
with SB accounts can leave their children with the bank manager for
babysitting services at a nominal cost.
This might
be just a joke, but it does reflect the deep frustration among bankers
at being mandated to carry out an enormous number of the government’s
social objectives.
There has been a lot of commentary
asking the government to reduce its involvement in Public Sector Banks
(PSBs). The government has been asked to reduce holdings, step away from
appointments of chairmen and board of directors, and to not interfere
in bank schemes such as the farm loan waiver or mandatory priority
sector lending, But nobody is talking about the government using PSBs to
roll out its various populist schemes, which will affect their
day-to-day operations in the short run, and its overall competitiveness
in the long run.
A quick search will reveal that the
number of government social schemes that use PSBs is uncomfortably
high. The schemes cover a range of areas such as insurance (Pradhan
Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana,
etc), pension (Atal Pension Yojana), financial inclusion (Pradhan Mantri
Jan Dhan Yojana), and priority sector lending, which includes various
schemes under agriculture, micro and small enterprises, education,
housing, export credit and others.
Each
scheme usually comes with countrywide targets set by the concerned
ministry, which are then distilled and divided into smaller numbers for
each bank branch. For example, the Pradhan Mantri Jan Dhan Yojana
(PMJDY) has an ambitious target of opening 10 crore accounts, to be
divided among the banks. One PSB was assigned a target of 1 crore
accounts and one of its branches in Bengaluru had a target of 1,000
accounts to be opened within a week. Such targets are rarely met, and
even if they are, they rarely match the desired outcomes, due to
complete misalignment of incentives. With a severe dilution of Know Your
Customer norms, there is enough evidence about the actual success of
the scheme — 75 per cent of the accounts are empty, multiple accounts
have been opened by single persons, and there are huge costs that the
banks bear (Rs. 200 per bank account).
But what is
perhaps the biggest cost to banks is the opportunity cost they lose in
implementing these schemes. Ambitious targets and time frames take up
precious time that could have otherwise been used to carry out the
original mandate of the banks — accept deposits and make loans. All
normal bank activity comes to a standstill during such public drives,
with employees being swamped by the targets. Even big business clients
are asked to wait until the pressure eases. The PMJDY drive halted all
normal banking activities for an entire week.
At a
time when public sector banks are finding it hard to beat the
competition posed by deep-pocketed foreign and private sector banks,
they can ill afford to let their biggest customers take a back seat
while they meet social goals.
However,
since social security measures are important, how about using another
government-run behemoth, India Posts, for this task? As it struggles to
find relevance in the digital age, perhaps the answer lies in reusing
its enormous reach for delivering social schemes. In the U.S., this idea
is being examined, and the U.S. Postal Service presented a report this
month outlining exactly how postal banking could promote financial
inclusion while turning in a neat profit for the service.
Two criteria have to be considered: reach and capability. India Post
has a network of over 1.5 lakh branches across India, a reach that far
exceeds all the PSBs combined. Of the 1.5 lakh branches, about 1.4 are
in rural areas, compared to the combined 23,000 rural branches of the
public sector banks.
India Post already runs the Post
Office Savings Bank account, which handles cash worth Rs 6 lakh crore
per year across 28 crore accounts. The service has also been quite
successfully handling cash payments in the Mahatma Gandhi National Rural
Employment Guarantee Act — nearly 5.6 crore MGNREGA accounts, and wages
amounting to nearly Rs. 10,000 crore have been disbursed to
beneficiaries through 97,709 post offices across the country. Of the
three main building blocks of financial inclusion — cash storage,
disbursing payments, and giving credit — India Post has already shown
that it is quite capable of handling the first two.
In
the longer run, for India Post to play a bigger role in the fulfilment
of the government’s social objectives, the following steps can be taken:
First, one of the smaller and healthier PSBs could be merged with
Indian Post so that the latter acquires a banking licence and a trained
workforce. Second, incentives could be offered to the present workforce
to sit for the banking exams. Third, banking exams could be made a
requirement for a percentage of the new recruits; and, finally, the
banking division of the post office could be brought under the RBI’s
regulatory purview.
With this, India Post can
expand from financial inclusion to handling insurance and pension
accounts, priority sector lending in rural areas, and many other
financial functions as well.
Some post offices
around the world have undergone this transformation quite successfully.
The Royal Mail of the U.K., for example, does all the things a bank does
and additionally even provides telephone and broadband service.
This move could free public sector banks from being yoked to social
sector objectives and allow them to become competitive and function
freely in the highly cut-throat banking sector. Simultaneously, it could
harness the potential of the post office network in India.
Source : http://www.thehindu.com
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