Financial inclusion is a key policy ingredient for the Indian Government with regard to the banking and financial services sector. However, out of a population of more than 1.25 billion, there are only about 400 million unique account holders in the entire Indian banking system. By comparison, just the Indian Post Office Savings Bank (POSB) has nearly 350 million people that have savings accounts with it. It is a lifeline for people with low incomes, especially for those living in remote regions with little access to bank branches. To put it in perspective, out of the 155,000 post offices in India, most of which offer savings accounts, almost 90% serve rural and semi-urban areas. A significant share of the accounts with the POSB is related to the welfare schemes instituted by the Indian Government, and plays an important part in reaching the under-banked masses of the country.
The Government has recently licensed several payment banks to complement the existing banking system. These banks will operate savings accounts for balances up to Rupees 100,000. Having recently received the government’s approval to become a payment bank, the India Post Payment Bank (IPPB) has set out ambitious plans to increase its reach in the country through dedicated bank branches. The IPPB would take over the savings accounts with POSB in due course. It plans to open as many as 650 branches, one in each district in the country, during 2017. It intends to further network each branch with about 1200 to 1500 post offices in its respective district.
Technology will be central to IPPB’s plans since it will be utilizing a leading Indian core banking system software, Infosys’ Finacle, to connect its branches and ATMs and ensure that its customers can access its banking services across the country. While the new branches will become a part of the banking network as and when they come online, by end of 2016 around 23,000 post offices had already been migrated to the core banking services platform and nearly 1,000 ATMs were also operational. For now, the IPPB is offering a savings account up to a balance of Rupees 100,000 (~$1,500) along with digitally enabled payments and remittance services between customers. It has set a minimum account balance for its customers of Rupees 50, or less than a dollar, far lower than most private sector banks at present. In time, the IPPB plans to also provide current accounts and access to third party financial services like insurance, mutual funds, and pension products.
Going by global experience, opening 650 branches across a large country such as India would have infrastructure challenges. Assuming the IPPB already has access to real estate through the network of Post Offices across the country, staffing these branches and ensuring that they have IT connectivity and are part of the IPPB’s core banking system would be no easy task in itself. Vendors such Hewlett Packard Enterprise and Fidelity Information Services (FIS) are keen to offer their IT infrastructure expertise to the IPPB to help create the technology backbone for its banking network. The capabilities of Infosys’ Finacle division would also be tested during the next 9 months as it provides the core banking support to the IPPB. One way out might be to upgrade some of the existing 23,000 networked post offices into payment bank branches, but that might have its own systemic capacity constraints. If the IPPB is successful in meeting its ambitious goals, it will make a very interesting case study for retail financial services firms the world over.