BANKING ON INDIA POST

            If India Post were to encourage the private sector to ride piggyback on its network to promote its products, its deficit might prove to be less of a burden.

          The Communications Minister, Mr Kapil Sibal, wants the Reserve Bank of India (RBI) to grant a banking license to India Post. The proposal makes eminent sense, especially at a time when financial inclusion has become a pervasive buzzword. With 1.55 lakh post offices in the country, of which 1.39 lakh are in rural areas, India Post's reach is bigger than the 75,000 branches (just 22,000 rural) of all scheduled commercial banks put together. Moreover, it is already in the business of banking in a sense: The various savings schemes operated by post office across India have outstanding balances of some Rs 600,000 crore. There is no reason for not extending this function to the next stage — channelising depositors' money for lending out to others and providing cheque facilities. The best example of why it is not an outlandish idea is provided by Japan's post office, which, as the largest holder of personal savings in the world, offers banking and life insurance services, apart from selling stamps and delivering letters. Allowing India Post to undertake regular banking functions would serve two objectives. First, it would make the institution more viable than it is at present on account of its being restricted to loss-making postal operations. Second, its unique outreach would equip it to serve social objectives.

          India Post has a clear advantage over banks as a vehicle for promoting financial inclusion. The use of mobile banking and banking correspondents, for all their undeniable promise, can hardly bridge the gap in rural outreach. Besides, the usurious excesses of micro-finance have robbed it of some of its sheen. With less than 40 per cent of the rural households covered by institutional lending, the potential of the post office to address the crisis of credit in rural India can hardly be over emphasised. Its financial inclusion potential has already come to the fore in the context of implementation of the Mahatma Gandhi National Rural Employment Guarantee Scheme, where 46.7 million accounts had been opened and wages amounting to over Rs 18,000 crore had been distributed as on October 31 last year. It is also proving useful as the nodal agency for distribution of UIDAI cards.

          While India Post runs up an annual loss of some Rs 7,000 crore, its long-term deposit bias would, however, give it a cost advantage in the lending business. It can make micro-loans and plug into the self-help group network. India Post is also serious about promoting electronic and phone banking solutions for its customers. If, apart from offering banking services, India Post were to encourage the private sector to ride piggyback on its network to promote its products, its deficit might prove to be less of a burden. In the final analysis, a postman doubling up as banker may well turn out to be the best inclusive banking solution of all.

(This article was published on February 5, 2012, The Hindu Business Line)