Postal services in India: The birth of a new mega bank

Written by Mrityunjay Pandey || June 28 2016

The Department of Post (DoP) is all set to launch its payments bank by September this year after receiving the in-principle approval from the RBI to launch the same in August last year. With over 154,000 post offices of which 130,000 are operating in rural pockets of the country the new bank is expected to be a sure winner on account of the distribution strength. No wonder that some of the world's top 50 banks including Barclays of England, Deutsche Bank of Germany, Citi Bank of USA and the World Bank wanted to link themselves with the postal department for a piece of the action.

Several naysayers are questioning turning postal services into a payments bank and whether it will actually succeed. Interestingly, postal administrators are the main financial services providers in more than 75% of the nations around the globe. Japan, New Zealand, Switzerland, France, China, South Korea, South Africa, Morocco etc have seen immensely successful postal banks. A postal bank can be a great asset in a country where large chunks of the rural population (around 61%, according to the RBI), are either still unbanked or underbanked.

The DoP has been successfully running the Post Office Savings Bank for the Ministry of Finance. It also has the infrastructure and the know how to handle large number of cash transactions as it has been doing through the ‘money order’ services. Setting up an independently owned bank was the natural logical next step. With the payments and remittances space getting redefined in the recent past, the department had lost a signififcant share of its bread and butter money order business. Hopefully, the payments banks will ensure continued relevance of the DoP’s products and services.

The IPPB (Indian Post Payment Bank) will be set up as a Public Limited Company under the Department of Posts with an independent Board of Directors. It will be headed by a Managing Director and CEO, and will set up a corporate head quarter and up to 650 branches to manage its functions on a day to day basis. The IPPB will take advantage of the physical and IT foundation of the post offices and be set up on a lean workforce model. It will concentrate on minimal effort, generally risk-free, innovation based answers to extending access to formal banking for the population in the country’s hinterlands.