India Post aims to be banker of masses

A woman enters a branch of India Post in Mumbai. India Post will start operations as a payments bank around December. It will offer all financial services except extending loans.

The world's largest post office network is planning to ramp up its financial services across India, triggering a race among commercial banks to set up partnerships to reach remote areas that have been unprofitable.
India Post will start operations as a payments bank around December after receiving central bank approval last year, said M.S. Ramanujan, head of banking services at the country's third-largest employer. About 90 per cent of post offices are scattered across the country's 600,000 villages, giving it a reach that no commercial bank can match.
"India Post certainly will be a game changer in financial inclusion," Abizer Diwanji, Mumbai-based leader for financial services at EY India, said. "They are in the best position to multiply existing banking services."
Bringing the roughly 200 million Indians who lack a bank account into the financial system can help Prime Minister Narendra Modi lure much-needed savings and plug costly leakages in the government's cash transfer programs.
Central bank governor Raghuram Rajan is betting that competition from India Post and others will push commercial banks to become more efficient and lower the cost of services.
Around the world, three of every four postal operators offer financial services to about one billion people, according to a November 2014 presentation from the Universal Postal Union. While India is decades behind nations such as Japan and Australia in allowing its post offices to perform banking services, the government has long used them for its small savings programmes.
Only 38 per cent of bank branches are in rural areas due to the high cost of operations. As a payments bank, India Post would be able to offer almost any financial services except for extending loans.
The entity's unparalleled reach has prompted more than a dozen firms - including State Bank of India, Barclays and Deutsche Bank - to vie for partnerships. The postal department has yet to say when it will decide on potential tie-ups, or how they would work.
"In terms of number of accounts, they could be pretty large in a short span of time," said K.V. Karthik, a partner at Deloitte Touche Tohmatsu India, referring to India Post. It would, however, take time to gain critical mass in terms of amount of deposits, he said, without offering an estimate on the number of accounts.
India Post's infrastructure would help it work with the government's direct cash transfer programmes and cover the last mile left over from Modi's financial inclusion plan, Ramanujan said. The postal bank would also be free to set deposit rates that could be higher than the government-controlled rates on small savings offerings, he said. - Bloomberg

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