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Sarbajeet K. Sen

New Delhi , March 14

THE dwindling queues at the country's post offices could soon become longer, but this time around the rush could be at the counters offering banking services.

A section of senior bankers are of the opinion that the Budget proposal to impose a tax on cash withdrawals over Rs 10,000 in a single day from a bank could push account holders who are unwilling to leave a tax trail into transacting through the Post Office Savings Bank.

"Those seeking to stay out of the tax net would definitely look for avenues to carry on with their transaction. The post office savings accounts could definitely turn out to be an alternative for them to keep their cash. This could be detrimental to the business of commercial banks," said Mr M.S. Kapur, Chairman and Managing Director, Vijaya Bank.

In the Budget for 2005-06, the Finance Minister, Mr P. Chidambaram, proposed to levy a 0.1 per cent tax on cash withdrawals on a single day of Rs 10,000 or more from banks.

The measure, he had said, was not intended to be a revenue-raising one but to create a tax trail to track transactions that eventually end up in the cesspool of black money.

While admitting that the new cash withdrawal tax would not apply to post office savings banks, Finance Ministry officials said that post offices would not be a threat to commercial banks. "Nobody keeps large amounts of money in post office savings," said a senior Finance Ministry official.

Though bankers agree that this has not happened till now, the sheer necessity of avoiding the taxman could give the decisive push towards post offices.

"The enormous post office network could dwarf most banks. In the rural and semi-urban areas there are substantial transactions through post offices. There is every likelihood that this could happen in the cities as well," said another senior banker.

Currently, there are over 1,50,000 post offices in the country, which is the largest network anywhere in the world.

There are no limits on the amount that can be withdrawn at a time or the number of times that a person can withdraw money from the account.

On the face of it, the post office savings bank offers enough room for those who undertake frequent high-value transactions. While the maximum amount in an individual account is Rs 1,00,000, a joint account can have Rs 2,00,000.

There is, however, no limit for group, institutional or official accounts. The interest rate of 3.5 per cent per annum is also comparable with rates offered by the commercial banks. In October 2004, when the Indian postal services celebrated its 150th anniversary, the Post Office Savings Bank had over 16 crore account holders with deposits exceeding Rs 2,60,000 crore.

At that time, the Minister of Communications, Mr Dayanidhi Maran, had said that the quantum of deposits was comparable to no less a bank than the State Bank of India - the country's largest bank.

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