A Big Push to Financial Inclusion with Launch of India Post Payment Bank

Mr. Shishu Ranjan
Economist and Banker

As the long wait for India Post to start as a bank gets over, it enters into a financial world full of complexities, cut throat competition, increasing cost, and depleting interest margins. It will be very interesting and exciting to see the journey of Indian Post Payment Bank (IPPB) now onwards. Only time will tell how this new entrant will grow up to deal with the challenges and rise to the opportunities in order to strengthen the banking sector which is considered to be backbone of any economy. 

How a new entrant competes with other bank depends on many factors. One such is brand. Such is the importance of brand value that the Royal Enfield is competing with Harley Davidson  motercycles very well even though Harley’s products are of much better quality. At least in this aspect, India Post brand for IPPB is going to give existing banks run for their money. Most of the Indian Citizens have emotional connection with India Post. This emotional quotient is higher among middle aged and older population as they used India Post services for communication with their near and dear ones. Twenty years ago when telephone was a luxury, it was India Post that ferried letters for everyone. Letters from parents to children, letters exchanged between lovers, letters sent from wife to jawans posted on boarders, appointment letters for admission, jobs, moneyorders sent for family members from other cities or even country, etc. evokes an emotion which can not be bought using money used in advertisements in order to create brand image.  Definitely the age group with such memory are now better off and therefore, attracting them financially towards IPPB as a brand will be easiest. 

Other factor needed to compete is product variety and quality. In this aspect too, India Post is not behind. In terms of financial experience, IPPB already has enough experience of handling deposits and managing funds. Kisan Vikas Patra was similar to time deposit and used to be very popular among earning population to save taxes. Post Office saving deposits also used to be very popular among rural population. These operational experience in financial world prepared India Post to apply for banking licence with RBI. 

The third important factor required to compete is scale. If we see the example of Jio mobile network, it’s success is credited to scale on which it was launched. With aggressive pricing, it managed to acquire significant share in record time and it will not be wrong to say that Jio is considered to be a market leader in telecom industry. IPPB already has a scale unmatched by any existing bank in India. With 1.55 lakhs post office branches, it is larger than all banks combined. Most important, almost 90% of its branches are in rural areas. It already has more than 17 crore postal accounts and again mainly within rural areas. Therefore, it will be India’s largest bank in terms of volume and will be providing its services mostly in rural unbanked areas where banks have refused to operate, even when asked to. 

The sheer scale of IPPB is very important for people, policies and governments. For people who were unbanked just because no banks were existing due to profitability issue, IPPB will be their bridge to financial inclusion into mainstream economy. For IPPB, it will be profitable as they have to spend minimal on already existing infrastructure and it will be recovering cost through various already existing non-banking services. In addition to depositing their hard earned money, people can avail payments facilities along with other financial and banking services.

For government, IPPB will act as last mile connectivity between government and citizens for enabling complete financial inclusion. Government can bank on IPPB for successful implementation of direct benefits transfer scheme without excluding a single citizen. IPPB can cover each village and therefore, cash transfer schemes of government through this bank will enable 100% coverage of eligible candidates. IPPB is also expected to solve classic problem of automation reducing human touch in banking. In rural areas, Head of India Post offices i.e. postmaster, generally knows everyone in his area. At least the post man, who delivers post to residents under his post office area knows every family. His personal connect will also help in managing customers and educating the uninitiated on financial well-being. Therefore, IPPB has the opportunity to lead the banking sector in terms of outreach as well as customer loyalty which is most important factor for long term viability.

For policy implementation, the IPPB will be most efficient as it has last mile connectivity. This can be a first preference bank for policies implementation under Panchayati Raj System (PRS). For successful implementation of PRS in democratic India, management of finance is crucial. However, it lacked a financial institution which can be relied upon. Central and state governments rely mostly on State Bank of India as their first preference. However, SBI itself does not have high penetration in rural areas when compared to IPPB. Therefore, IPPB can truely be the bank of smallest unit of democracy i.e. Panchayati Raj System and help in achieving Gandhi Ji dream of empowering villages economically. 

With all these opportunities, there lies some daunting challenges which IPPB has to tackle. The IPPB has to invest the deposits it accept into low yielding, though safer, Government securities. It makes economics of a payment bank challenging, as it can't offer more than what earns on it's investment. Therefore, attracting term deposits  by offering competitive rates  will be a challenge. Other one is preventing financial malpractice involved into banking transactions. Preventing this should top the agenda for senior management. 

Overall, the introduction of India Post as a bank is a right decision and will benefit millions in rural India. Therefore, CSRA welcomes this bank into financial world with best of wishes to succeed. This is one bank which Bharat can not allow to fail as this will be failing the idea of Bharat, idea of democracy, dreams of Mahatma Gandhi, and vision of India becoming Jagat Guru once again.