The Hindu Business Line : Post-office makeover

IT IS INTERESTING that the Postal Department, having just completed its 150th birthday, should seek new apparel, those of a banker. With over 1,50,000 offices and 5,90,000 staff, it has the reach of no other organisation; yet its girth is now a serious problem as its operations do not earn enough to sustain the massive edifice. Competition and technological change have taken a toll on the old business of delivering mail. Courier companies in the private sector have creamed away the commercial business; the Department now has just 10 per cent of the express industry. International mail, the most profitable line, is seeing a large drop in volumes as e-mail takes over. The competition post-card that television viewers dashed off to participate in shows was once profitable; now those shows do just as well with SMS sent from cell phones. The cheap post-card that costs 50 paise to the user but ten times as much for the Postal Department to deliver continues to be popular. Seventeen of the 20 services that the Department offers no longer make any money. On the whole, the operations are hopelessly unprofitable, the Department makes Rs 3 for every Rs 4 it spends, and the annual Budgetary support it needs is over Rs 1,400 crore.

Having cast around for a profitable, new activity — it has tried its hand at selling services and goods from mutual funds to cellular SIM cards — it thinks it has a potential winner in banking services. It has a point. Banking is a role it has long played on a scale as massive as its spread; its deposits are matched only by those of State Bank of India. But it does only half the role: it collects deposits but does no lending, the money being entirely assumed and serviced by the Government of India. The deposits are large because it collects them through its network that is twice as wide as those of all commercial banks put together, but more pertinently because they carry attractive interest rates, usually higher than those of commercial banks. Should the Postal Bank go commercial, it may need to drop those high rates, and the deposit counters may not be as busy as they are. But nothing can take away the enormous advantages conferred by reach and by years of trust that the population has in the postal institution. The post-office will therefore remain a good draw for depositors.

Turning into a full-fledged bank will not be simple though. The Finance Minister has said the Government is considering allowing post-offices to disburse credit in the rural areas, that is, releasing loans appraised and sanctioned by other banks. But that is doing more of the same: Being the well-worn channel into Rural India. Becoming a bank would require new skills: loan appraisal and fund management being two such. In addition, the post-office bank will need substantial capitalisation to meet the capital adequacy norms, and computerisation and networking of branches would also be imperative. Yet, these are not impractical conditions to comply with. The Government would do well to fund the post-office diversifying into a more profitable line than continue to furnish Budgetary support year after year for a loss-making yet socially-important activity.

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