Given its rural reach and track record in mobilising small savings and providing diversified financial services, India Post is better placed than commercial banks in helping the Government achieve its financial inclusion goal.
Recently, the Reserve Bank of India constituted a high-level committee on financial inclusion under the chairmanship of K.C. Chakrabarty, Deputy Governor, RBI.
The committee, with representatives from all stakeholders in the financial inclusion (FI) process, will monitor regularly the progress made by partnering banks and other agencies. This obviously indicates that everything is not hunky-dory with FI.
Although the RBI Annual Report 2011-12 (Table IV.6, pp.89) presents an encouraging picture of the progress of scheduled commercial banks in the FI plan (excluding RRBs), it is felt that the quantitative data hide more than they reveal; qualitative assessment speaks otherwise.
It is against this backdrop one thought whether there could be an “exclusive or near-exclusive bank” for FI in the country. The idea that sprang to mind was whether converting India Post into a bank could provide the answer. This has been long-discussed but not acted upon.
It is clear that India Post has an advantage over commercial banks as far as their coverage is concerned.
The postman is regarded as a friend, philosopher and guide to the rural folk. Banks have not been able to penetrate into remote areas due to their several internal and external rigidities.
With the RBI announcing the entry norms for another round of private banks, India Post should seize the opportunity to convert itself into a bank, inter alia, with stipulated capitalisation.
If this happens, the rural offices of India Post can be consolidated into rural branches of, say, an India Post Bank.
India Post has been doing an excellent job as far as mobilisation of small savings is concerned. Latest statistics indicate that there are some 26 crore deposit accounts worth around Rs 4-lakh crore (excluding NSC VIII and KVP). MIS and RD together command almost 70 per cent of the balance outstanding (see chart).
Besides, it has been doing well in providing diversified financial services, such as life insurance, mutual fund, e-money order and forex services. Its deposits plus the capital mobilised can be on-lent to the financially excluded.
Small-scale lending is not knowledge-intensive and, therefore, the existing staff can very well manage it. However, a word of caution: rural savings should be utilised in rural areas.
Besides savings products, small credit and other remittance services, India Post Bank can render insurance services too as it has vast experience running the Postal Life Insurance (PLI) and Rural PLI schemes.
PLI is the first life insurance scheme introduced way back in 1884 and today it has around 46.86 lakh active policies with a sum assured of Rs 64,077 crore. The corresponding figures for RPLI are, respectively, 1.22 crore and Rs 66,132 crore.
There should be two subsidiaries of India Post Bank: one for rural operations and the other for urban. It is perceived that the rural banking subsidiary will be able to make a visible dent on the problem of financial exclusion in the country.
India Post is ready with a plan to upgrade its technological capability. In fact, its implementation has already begun.
The same would be harnessed for use by the India Post Bank for promoting FI. Already, around 38 crore MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) accounts are with India Post through which beneficiaries receive their wages.
However, the question is what would happen to urban and metro offices of India Post.
They may be consolidated into urban branches and the urban banking subsidiary of India Post Bank would manage these branches and their business.
However, for some time to come these branches should not resort to medium- or large-scale lending because that would require intensive credit knowledge, risk management techniques, and so on, which the existing staff would not know.
So they will have to be trained. And till such time the subsidiary should practise what is known as “narrow banking”, that is, investing the deposits mobilised in 100 per cent secured government and public sector debt securities.
Addressing the Change
However, India Post Bank should make investments in modernising the newly formed branches, provide the required wherewithal — such as two-wheelers, hand-held devices and mobiles — to its marketing staff to do business in remote areas.
Once India Post becomes a bank, it would infuse a sense of enhanced pride into its staff whose salary and perks will also be equal to that of the bank staff.
Necessary changes at the board level need to be made and various other committee members cherry-picked.
However, it is felt that a seasoned banker from pubic sector banks, preferably from SBI, should be the CEO of India Post Bank, with two group executives for the rural and urban subsidiaries.
Converting India Post into a bank and utilising the major part of its services for FI can be compared to the mythical sagar manthan (churning of the seas).
Both amrit (nectar) and bisha (poison) are likely to come out from the churning. Attempts should be made to conserve the good and guard against the evil through various risk-management techniques, HR interventions, good corporate governance, customer relationship management, and so on.
Like Grameen Bank of Bangladesh, one day India can proudly say that it has an exclusive bank for FI.
(The author is a former commercial bank economist.)