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Friday, March 17, 2017

Rs 50 minimum balance, no transaction fees: Can India Post be the answer to banks’ greed?

Imagine a bank with pan India presence where you need just Rs 50 minimum balance in your bank account (with no penalties) and Rs 20 is all you need to open this account. It might sound unreal at a time when private, foreign and now even public sector banks insist for a minimum balance anywhere between Rs 5,000 to Rs 1,50,000 and levy charges on almost any transaction you do with them, including cash transactions.

These figures are true and this savings bank is India’s postal department. For accounts with cheque facility, the minimum balance and initial amount needed is Rs 500, but still way cheaper than all other banks. Postal savings accounts offer a rate of interest of 4 percent on such savings, promises no yearly charges/ no hidden fees and has a massive branch network of about 1.5 lakh (about 1.3 lakh in villages and about 25,000 in cities and towns), the department has much bigger network than even the State Bank group combined (about 25,000).

To become the dream bank of the common man, the postal department only needs to ramp up its infrastructure and product offerings. In terms of reach, it is a giant. Take a look at these figures. As on 27 December, 2016 about 23,091 post offices have been migrated to CBS (core banking services) and 968 ATMs are operational.

The postal department already has years of experience in maintaining savings accounts. Total outstanding balance under all National Savings Schemes and Savings Certificates in post office is over Rs 6,39,254 crore as on 31 March, 2016. Out of this, amount garnered under the savings accounts is about Rs 55,082 crore and Rs 76,181 crore under recurring deposit scheme.

With ATMs becoming interoperable, India Post customers having debit card can do transactions on other bank ATMs and similarly other bank customers can transact on post bank ATMs. The CBS spread means you can transact your postal banking account in any of these branches covered under CBS, just like a normal bank. And what more, the department promises no charges for any number of transactions you do at their branches and ATMs.

In short, this means postal department can offer a major alternative to a poor farmer or a salaried employee who don’t want to get harassed with the massive charges imposed by traditional banks, if it gets the act together. The present industry situation offers a major opportunity for the department to get its act together and ramp up its infrastructure, technology platform to take on the competition. It needs to act in the following areas urgently:

One, create a strong technology platform that can offer mobile, internet banking to the postal savings customer. As of now, postal bank customers do not have the facility to bank on mobile and internet platforms. In the era of new age banking, it is absolutely necessary for the department to offer technology-based banking platforms to the aspiring customers who look for an alternative to the traditional banks.

Make no mistake. Postal savings bank customers no longer need to be confined to retired employees and housewives who would stand for hours in queues to reach the post office counter. The new age customer of the department will be tech-savvy, cost-sensitive younger generation and to appease this class, the department needs to go for a major makeover using technology.

Second, look for synergies with the recently launched postal payments bank. For this, the government may have to change the laws governing the department since payment bank is regulated by the Reserve Bank of India. But, this synergy is a must to avoid confusion among the common man regarding the seemingly similar offerings coming from the same department.

According to AP Singh, who heads the payments bank operations, the activities are still at a concept stage and presently the bank has only eight access points though it has an ambitious plan to acquire new clients. The payments bank cannot use the captive client base of postal savings department since these two are separate entities. Just that the postal savings customers have an option to avail payment bank services.

Third, for such a big makeover, and competition with regular banks, the postal department needs to get its staff ready. This needs special skill sets and dedicated staff and can’t be just another activity apartment. The new customer needs attention and speed of transactions.

The bottomline is this: Time is ripe for the postal department to get its act together and ramp up its infrastructure to position itself as an alternative to common savings bank customers. There is a big opportunity particularly given the widespread resentment (read here) against the greedy commercial banks on account of the high transaction charges they levy on common customers.
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