The government has, in the past, often tended to hold India Post — the world’s largest postal network — to account on commercial performance parameters, while at the same time utilising its vast network to push its various social objectives. This is somewhat unfair, since India Post has demonstrated that, given the opportunity, it is more than capable of meeting the most exacting expectations of even global players. It has emerged as one of the leading logistics partners for India’s explosively growing e-commerce sector, while at the same time ensuring last-mile delivery of an array of government services, ranging from benefit transfers under NREGS to old age pensions and health insurance for the poor. This is why the proposed corporatisation of India Post is a welcome development, since it will provide a measure of autonomy to the commercial arms of the department. The plan envisages setting up a holding company under which five independent entities will look after different aspects of the postal department’s operations including separate companies for banking and insurance. This will enable greater focus on individual businesses. In particular, the reach and trust the postal network in India commands make it an ideal candidate for a bank licence.

But a universal bank licence, that permits a post bank to do lending operations, may not be the ideal option. For one, it will entail an infusion of a minimum ₹500 crore as capital followed by periodical infusions (given Basel III requirements) as the bank starts growing. This will be an unnecessary strain on an already burdened exchequer. Second, such a post bank will have to diversify and build new skills in credit appraisal and risk management, a costly and time-consuming exercise. Third, the raison d’être for another public sector bank in this space is not compelling — especially when some of them are struggling with existential issues. The department must instead seize the opportunity to go in for a payments bank licence. This will not involve lending, but will nevertheless help leverage its impressive network of over 1.55 lakh offices (much higher than the banking system’s 1.05 lakh offices). Most of these post offices are in rural areas and are therefore perfect vehicles to operate remittance services that are gaining traction as India’s urban migration grows. The trust, local knowledge and reach that the postman commands constitute the core competency for such a bank.

Prime Minister Narendra Modi hinted at these strengths while tweeting that the “postman along with a teacher is the most respected government employee in rural areas”. Incidentally, the savings bank accounts offered by post offices already have deposits of over ₹6 lakh crore, second only to the State Bank of India. Financial inclusion has been the lodestar by which the government wants to steer the financial system. The commercial bank system has been pushed and stretched to its limit by mandates and incentives to take banking to the poor. It’s time to try other alternatives.

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