Will India Post revive to deliver more than just letters? The New Higher Rate Savings a/c IPPB
India Post’s accessibility plays a pivotal role in enhancing financial inclusion in rural India. Nevertheless, times are gloomy for India Post, which has been incurring huge losses for a while now. Fortunately for India Post, the government has a revival plan in mind. And that is to make it a full-fledged bank! Ssssshh, the plan is not yet finalised. But hey, the initial plan was to reduce the number of public sector banks in the country. That is why, just some months ago, a handful of PSBs were merged to dilute the number to just 4. Then why the contradiction? Let’s read on to find out.
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IPPB: the by-product of India Post and modernity
Despite offering a relevant high-interest saving scheme and having a wide reach, the need for India Post to keep up with modernity was still felt. That is why PM Modi launched the India Post Payments Bank (IPPB) in 2018. This RBI-owned public sector company mainly focused on offering doorstep banking to customers in rural areas. The transaction limit was Rs Rs 10,000 and the cost per instance was 15-35 per transaction.
Customers could open current accounts, transfer funds, pay utility and merchant bills via the traditional method of over-the-counter service, mobile banking app, micro ATM, and phone calls. Moreover, IPPB also provided access to third-party financial services including mutual funds, insurance, pension, and forex. However, unlike a traditional bank, India Post Payments Bank could only accept a deposit of up to Rs 1 lakh per customer. Further, it couldn’t offer loans and credit cards.
The trigger to convert India Post into a full-fledged bank
India Post Payments Bank failed. And one of the reasons was that its pay and allowances exceeded its revenue. To be precise, India Post’s employee costs excluding pension in FY 2020 were 142% more than its revenue. And in the previous year, the total employee cost was for Rs 27,722 cr including pension costs of Rs 10,271 cr. This is certainly not a pleasant sight. No wonder why the government wants to run to India Post’s rescue.
Is the probable plan to make India Post a bank even logical?
The plan, which is not yet finalised, may seem to be absurd—especially because India Post was denied a universal banking license in 2013 (citing RBI didn’t want to create a new PSU). But 5 years later, India Post got the payments bank licence, and now the chances are that it could become a full-fledged bank).
What’s with all the foot-dragging? In RBI’s defence, the latest plan is more encompassing and would make India Post, IPBP, and 45 Regional Rural Banks (having a strong network of 14,000 branches) subsidiaries of an RBI-owned, public-sector holding company. This also includes RRBs that have a 50% government stake as well.
What’s for Regional Rural Banks in the revival plan?
Firstly, the probable revival plan would save India Post from tumbling further. Second, it would enhance RRBs’ efficiency, minimise their overheads, and optimise their use of technology. Today, Regional Rural Banks are divided into two sets. The first one is over-capitalised but doesn’t extend enough credit. The second one has limited capital but extends too much credit. Ergo, falling under the fold of a strong holding company as per the plan would help RRBs to use their capital efficiently. On the brighter side, the plan would bring forth RRBs’ ready-to-exploit deposit and lending portfolio, on which India Post Bank can build.
Moreover, Regional Rural Banks are financially well-placed compared to India Post. After all, the government has taken several initiatives on that front. But RRBs are not the only ones that are adding on to the plan. Let’s not forget the edge that India Post has. The post department runs 1.56 lakh post offices across the country and the plan is to convert them into bank branches. Together with Regional Rural Banks’ branches, that’s a huge chain of bank branches we are looking at. If this plan sees the day of the light, rural India will have a banking experience like never before.
What’s for India Post in the revival plan?
Speaking of what’s in store for India Post in its revival plan, the post department runs 1.56 lakh post offices across the country and the plan is to convert them into bank branches. Together with RRBs’ branches, that’s a huge chain of branches we are looking at. Further, the plan looks to convert India Post’s 4.2 lakh postmen into banking correspondents. Yes, that’s the kind of upgrade we might be looking at in the coming time.
Once the proposed bank takes the form (err.. let’s call it the India Post Bank hypothetically), it would be mandated to lend to priority sectors including agriculture and MSMEs. India Post is anyway doing that even now. So, there’s no major change here. Only, the lending limits would increase and the priority sector may benefit from the development. That’s a fair deal for all the beneficiaries of this unprecedented, yet-to-be finalised revival plan.
Final thoughts on the revival plan
If this plan sees the day of the light, rural India will have a banking experience like never before. However, that may just be in theory. Practically, punctuality, efficiency, and the will to serve the consumers right are what matters the most. So, will this plan rescue India Post? Will our high-coo pigeon deliver more than just letters? Or would the plan washout amid scarce revenue, swelling employee costs, and bureaucracy?