For A dak bank...
- It has a large
rural network of 1,39,040 village post offices
- Has accepted
deposits for decades—Rs 6.18 lakh crore in 2011
- Has established
the trust of people, thanks to government backing
- South Africa and
Japan have run successful post office banks
- Modest rollout
plans, claims it’ll hire the best professional managers
...And Against It
- The post office has
never managed the deposits it collects; FinMin does.
- The existing
employees will resent outsiders—potential culture clash
- New construction
etc needed to make post offices bank-ready
- Rural postal
network manned by 1 lakh underpaid non-regular staffers
- Could face
recovery issues, given the perception it’s an arm of government
***
Jawaharlal Saha is one of India’s 40,000 postmen. Every day, he
cycles with a payload of letters through the Mandi House area, in the bustling
centre of Delhi. “On some days, the mail weighs 40 kilos. I might cycle around
for say, five hours, and make repeat visits for Speedpost deliveries,” Saha
says. Like other postmen, he sorts some mail, hawks insurance, sells stamps and
pitches for the PO’s savings bank—tasks, he says, city postmen rarely have
time for.
Saha’s busy schedule is not exceptional. Over the past
decade, the postal service has delivered lesser and lesser mail. It
delivered 1,400 crore postcards, letters, newspapers, parcels and packets in
2001. This dropped to 660 crore in 2011, as private couriers captured the
field. Simultaneously, the post office’s workforce dipped 30 per cent, from
over 6 lakh to under 5 lakh. Its losses are roughly Rs 6,000 crore.
That’s why, about a
fortnight ago, the department of posts delivered its biggest package ever—a
proposal to raise a bank, which is now under the Union cabinet’s consideration.
Along with 25 corporate heavyweights, financial institutions and brokerage
firms, the department of posts has thrown in its weight—and, many say, its
fate. Backed by Union communications minister Kapil Sibal, this is part of the
government’s three-pronged strategy: a government-run postal system to
‘regulate’ the sector; a public-private-partnership (PPP) model to develop its
vacant land; and, crucially, the post office bank.
Six years ago, the department had suggested its transformation
into a bank, but that wasn’t cleared by the Reserve Bank of India. At the time,
India was not looking to approve new banks. This time around, there’s been a
warm reception, with newspaper editorials giving the proposal a thumbs-up,
citing its national reach and emotional connect with the people. But is that
sufficient to make for a viable bank?
“The proposal is a very well-planned-out effort,” says Ashvin
Parekh, partner and national leader, financial services, Ernst & Young. The
global consulting firm was appointed by the postal department five years ago to
suggest a revival plan. It suggested the setting up of a new company, the ‘Post
Bank of India’. “Postal services are shrinking and finding it very difficult to
fund their work, and face private sector competition. They have, however,
achieved efficiency in small savings, which the proposal hopes to leverage,” he
says.
Here’s the logic: all but
176 of India’s 1,54,866 post offices already provided financial services in
2011, and they have a great deal of trust-winning emotional appeal. For its
various savings bank and certificate schemes, the postal department had a
balance of Rs 6.2 lakh-crore in 2011, up from Rs 5.6 lakh-crore in 2007. “The
popularity of financial products such as PPF and postal savings does not seem
to have waned,” says S. Madhavan, a Delhi-based consultant, until recently a
senior partner with PwC.
So far, post offices take deposits and hand over receipts. End
of story. The finance ministry uses this money to fund the deficit or other
projects. If the Post Bank of India is approved, post offices will start
handing out loans, not just postcards. “There is no negative for investors if
the post office opens a bank. They will benefit from streamlining,” says
Calcutta-based financial planner Brijesh Dalmia. As a bank, the post office
will have to follow KYC norms and conduct due diligence even on rural sources
of funds.
There are precedents: South Africa has a post office bank, Japan
has one. “Are there global examples of postal services becoming banks
successfully? Yes. Is the task easy? No. In between these lies the truth,” says
Neeraj Aggarwal, a partner with Boston Consulting Group. He says the department’s
wide reach and the fact that it has historically accepted deposits are its
assets.
That said, it’s a long
trek. “The rollout plans are, accordingly, modest,” says Parekh. Initially, no
more than 50 to 200 post offices will become banks every year. So, for most
Indians, the post office next door—there is one within 2.6 km of everyone—won’t
transform overnight. Besides, only 24,100 post offices were computerised by
2011. “Core banking”, in which deposits show up on the ledgers instantly, is
still a work in progress.
To be an effective asset manager, says N. Srinivasan, a
Pune-based consultant who has worked with nabard and RBI, the post office will
have to learn how to invest money, give loans to factories and village folk. It
will also face an onerous task: collections. “Setting up a bank will prove a
challenge. Today, people feel postal deposits are government deposits. Will
this perception last when it becomes a bank? It’s to be seen,” he says.
The department will need Rs 500 crore to capitalise the bank,
and as much more to hire staff (they propose bringing in a management team
from the private sector), upgrade technology and train people. As 40 per cent
of urban and 60 per cent of rural Indians are “unbanked”, clients are expected
to line up.
Given the enormous hold of the post, there are detractors, of
course. CPI MP D. Raja says the banking plan basically ties in with the
department’s effort to privatise this essential service. “The land and building
development of postal department and all its services are being given a PPP
push. In fact, this is an essential service and the government should see it in
that light,” he says.
What could be equally
troubling is that 89 per cent of the post offices’ mail delivery is handled by
gramin dak sevaks, an agitated lot who are demanding pensions and salaries on
par with postmen. Over 1 lakh post offices are “extra-departmental”—that is,
the dak sevaks own the premises and get a pittance, if at all, as rent. S.S.
Mahadevaiah, general secretary, All-India Postal Extra-Departmental Employees
Union, says, “The department doesn’t have bank management experience, so it
will hire outsiders. Recovery will be handed to us. If these E-D post offices
become banks, the rent of Rs 100 (paid only to some) amounts to nothing.”
Like Saha, the dak sevaks regularly multi-task, collecting
price-related information, managing NREGA accounts, hawking financial
products and so on, usually getting a small “incentive” payment. In this
way, the postman himself has been reinvented. The Union ministry of statistics
and programme implementation had roped in dak sevaks to collect commodity
prices in 2010. “After initial glitches, the data flow has been smooth and
useful for us,” says T.C.A. Anant, secretary in the ministry and India’s chief
statistician.
Post office employees hope they will be part of the big new
banking plans. So far, there are murmurs of training and rollout of handheld
devices. Clearly, the bank won’t replace the post office just yet. But change
is in the mail.
Late in the evening of July 1, a press release from the Reserve
Bank of India created quite a to-do. In a rare display of transparency, the
central bank disclosed the names of all 26 applicants who had queued up for a
bank license. While most of the names were expected, one unusual applicant
stood out—the department of posts. Predictably, most newspaper columnists and
commentators have commended this move. The acclaim and approval for the postal
department’s future bank springs primarily from its one (and probably only)
redeeming physical attribute—its enormous reach. According to India Post’s
annual report for 2012-13, India has over 1.54 lakh post offices, of which
close to 90 per cent are in rural areas. That makes it the world’s largest
postal network.
This is a gigantic achievement. What’s more, given RBI’s
unambiguous stipulation that new licenses will be granted on the basis of the
applicant’s plans for financial inclusion, a new bank for the postal department
seems like a nap bet. Its rural network presents the best financial-inclusion
platform among all applicants.
But in realistic terms, it is unlikely that the Reserve Bank of
India will grant a licence on the strength of the network alone. There are
other drag factors. For one, questions can be raised about staffing. As on
March 31, 2012, the postal department had 4,74,574 people on its rolls. Second,
the central bank could allocate negative marks for the department’s financial
health. The 2012-13 annual report put the department’s 2011-12 losses at Rs
5,806 crore. In 2010-11, it was Rs 6,345 crore. Ironically, operational
expenses (Rs 8,720 crore) overshadowed the revenue receipts of Rs 7,899 crore.
Sure, the government fills the gap every year, but that might not stop the
Reserve Bank of India from asking questions about who’ll stump up capital for
the bank year after year.
Third, most of the department’s products and services are priced
way below cost. And, given the political sensitivities, it is unlikely prices
can be raised. This can be a source of continuing anxiety for the central bank.
There are many other reasons for RBI to look askance—state of technology,
operational processes, skill sets. One justification trotted out is the assumed
success of the postal savings and insurance schemes. The department is the
custodian of a humongous Rs 6,05,697 crore in people’s savings. But the net annual
loss might induce the Reserve Bank of India to raise reasonable doubts
about the security and efficient handling of savings.
The central question is: does India Post need to reinvent
itself? The answer is: certainly. What shape could that take? The rural
network, for instance, could turn itself into the country’s largest banking
correspondent network. Second, it has the best database on Indians and could
leverage that to provide authentication of KYC services. The postal department
is one of India’s best institutions and it can definitely reinvent itself in a
million different, and sustainable, ways. But a bank?
Above is not our view it is collected
from outlookInda.com
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