India Post Payments Bank (IPPB)- Banking services at doorstep

Why in news ?

Prime Minister Narendra Modi launched India Post Payments Bank (IPPB) on 1 September, 2018which is an initiative of the government aimed at making banking services available at people’s doorstep.

What is IPPB ?

IPPB has been envisioned as an accessible, affordable and trusted bank for the common man, to help speedily achieve the financial inclusion objectives of the Central government. It will leverage the vast network of the department of posts, which covers every corner of the country with more than 300,000 postmen and Grameen Dak Sewaks. The services of IPPB will be available at 650 branches and 3,250 access points.

What is Payments Bank:

A payments bank is like any other bank but it operates on a smaller scale without involving any credit risk.

Purpose of payment bank :

It will take banking to the doorstep of every citizen through network of post offices and almost 3 lakh postmen and ‘GrameenDaakSewaks’.

Why needed?

Financial Inclusion still a challenge. The idea of financial inclusion, particularly in developing markets, has always met with challenges pertaining to accessibility and affordability. The RBI and the Government have tackled these challenges in numerous ways and have made substantial progress. But problems remain in reaching out to those who are most vulnerable, namely, the illiterate, low-income and rural population.

As of 2017, 37 per cent of the Indian adult population remain excluded from the formal financial system; 21 per cent of those included do not actively use their bank accounts.

According to World Bank’s FINDEX 2017 report, primary reasons why the unbanked chose not to transact through banks was:

• They do not have enough money to start banking
• The cost and distance from bank branches was an impediment
• Lack of documentation and distrust in the financial system

Will it be beneficial both ways?

• The existing familiarity with post offices could help them overcome the hesitation of going to bank branches and dealing with bank personnel.
• If rural savings begin moving into the banking system, it will hasten the shift from physical assets such as real estate and gold to financial assets. Freeing the farmers and other residents of rural India from the clutches of moneylenders will be yet another positive.
• Besides these, India Post, which has been recording losses due to high operational expenditure and falling revenue, will get a fresh lease of life. The real estate that is owned by India Post can be leveraged for a more sustainable revenue stream. 

Salient Features:

• India Post Payments Bank (IPPB) will be like any other bank but its operations will be on a smaller scale without involving any credit risk.
• It will carry out most banking operations like accepting deposits but can’t advance loans or issue credit cards.
• Offers three types of savings accounts—regular, digital and basic.
• IPPB savings accounts are zero-balance accounts.
• The freshly minted payments bank will
  • Accept deposits of up to Rs 1 lakh – Open a post office savings account and link it with your IPPB account. Any balance in excess of Rs 1 lakh will be transferred to your post office account, which is a regular savings bank account.
  • Offer remittance services, mobile payments/transfers/purchases
  • Offer other banking services like ATM/debit cards, net banking and third-party fund transfers.
• The government owns 100 per cent in IPPB, which has been set up under the aegis of the Department of Postsand will offer products and services through multiple channels such as counter services, micro ATMs, mobile banking app, messages and interactive voice response.

The Way Forward:

There is considerable scope to leverage the present strengths of India Post to not just make it financially sustainable but also maximize the utilization of the infrastructure to link it with other goals of the government to create a virtuous cycle. But there are reforms that should be implemented for better services –

• The pricing structure has to be revamped as heavy losses cannot be sustained. Differential pricing based on location can be considered with the rural areas getting a subsidy. The other centres would have to be made to pay the full cost.
• Post office spaces should be leveraged to earn rent. As financial inclusion includes non-banking products also, these can be sold in post offices by the mutual funds or their agents.
• The existing staff can be trained to sell financial products like insurance and mutual funds in rural areas and a commission earned by the department.
• The post offices can be integrated with the eNAM initiative where terminals can be kept in these offices for use by farmers. Further, daksewaks can be used to also form a link with the agricultural markets (eNAM) as they have direct interface with farmers and can be given the responsibility of spreading awareness as well as be the link with the market prices. 

Conclusion:

Postal payment bank is an important part of the financial ecosystem in the country.The existing bank branches are not present in remote areas; various geographical areas have no presence of public sector banks. when post offices which have large network come into banking segment it will encourage financial participation in remote areas, provide ease in the transactions and better services to the customers.It is a  low cost banking solution where transaction costs will be lower along with low infrastructure cost and low compliance cost.

By: Richa Aggarwal