Finance
Ministry is blocking Post Bank of India
Inclusive growth is the buzzword
that Sonia Gandhi, Rahul Gandhi and the apostles of Sonianomics brandish at
every possible opportunity, but when the world’s greatest opportunity for
financial inclusion knocks at the their door, they look the other way. The
opportunity comes in the form of a private bank of the India Post, which has
1.54 lakh branches across the country, 90 per cent which are in rural areas.
The Reserve Bank has approved the idea, but the finance ministry is trying to
block it. Out of the 27 applicants (only 25 in the fray now) for a new banking
license, the Indian Post’s bank is among the five or six that has passed the
strict guidelines of the Reserve Bank. While other licensees can start their
operations once the Reserve Bank announces their clearances, the Indian Post’s
bank cannot because the finance ministry mandarins don’t like the idea. Is
there any particular reason that even with a Reserve Bank license an arm of the
government of India cannot start something that will help tens of millions
because another arm has a say over it? The only motives that one can assume are
the following. 1. Bureaucratic ego of the finance ministry: officers of the
finance ministry think that they are of a higher class than the officers of the
humble postal department. It’s simple arrogance of one ministry over another 2.
Turf issues : Banking operations are overseen by the Department of Financial
Services (DFS) in the finance ministry. Why should the postal services, whose
job is to deliver post, should get involved in financial services or banking?
3. Possible collusion with the public sector banks: DFS officials are on the
board of these banks, which may want to prevent competition from such a massive
network. Nobody can match the infrastructural strength of the postal services,
particularly in the rural areas. India Post has the widest reach in the nation
India Post has the widest reach in the nation Let’s take a look at the
possibilities of the proposed bank of the postal services called the Indian
Post Bank. Once operational, all the 1.54 lakh post offices, out of which about
90 per cent are in rural areas, by default will become a “bank”. These “banks”
will be more accessible to the common people, because they have been right
there for decades in their neighborhood: there is a post office for every 7176
people in the country and in rural areas, the coverage is even better - one for
every 5682 people. In fact, when the UPA government was struggling to find a
way to transfer the wages of NREGA beneficiaries, it was this network that came
to its rescue. About 2.2 crore people get their NREGA payments through post
offices. Financial services are not new to the post offices because for several
decades, they have been running the post office savings scheme. Besides the
extremely high penetration of the post offices, in rural areas, there are about
2.69 lakh agents (Grameen Dak Sevaks) who come home to help people with
banking. Almost all these agents are also people from the neighborhood and are
familiar with the beneficiaries. It is a unique banking eco-system that only
Indian Post can claim credit for. It is a model that has evolved over time and
is very hard to replicate because it is driven by the sheer needs of people,
and nourished by trust and relationships. It’s impossible to find another
system, than the Indian Post, that has such penetration and coverage anywhere
in the world. Unarguably, there is no other network of such scale. At present,
the post office savings banks are only about savings and do not offer credit
and other services which are essential to make them real banks, and work more
inclusively. The main idea behind the Post Bank of India is to make available
the entire range of banking services. Now let’s look the financial muscle of
the post banks savings scheme as it exists today. The savings banks scheme has
a whopping cash balance of about Rs 6 lakh crore and about Rs 22.5 crore
accounts. It also includes more than a million of senior citizens’ savings
schemes. The most striking part of this is that 89 per cent of it serves the
country’s rural areas. Significantly, all this money is lent to state
governments (its main source of public borrowing) and not to loss-making
airline companies. The postal system also runs a low-premium Postal Life
Insurance scheme serving about 1.69 crore people. In the last two years, the
Department has invested about 10-20 per cent of the premiums in mutual funds
with considerable success. Its portfolio managers are as good or better than
that of the regular banks. How will the Post Bank of India work? For the Post
Bank of India, the postal department will set up a non-operating financial
holding company which will float the bank, which will be a private entity. it
will have about 150 branches for which the head post offices will be a
correspondent. The access of the network will go all the way down to the neighbourhood
post office. The bank will have various products and services that will
strengthen financial inclusion. The idea, for which everything is ready, is
about real financial inclusion that the existing banks will never be able to
achieve in near future. All that it requires from the government is an
investment of Rs 700 crore. Reportedly the RBI governor Rahguram Rajan will
meet with finance minister Chidambaram before announcing the licenses. If
Chidambaram raises his ministry’s objection, Rajan will have to either drop the
license or defy the government, although the latter is quite unlikely. Sonia
and Rahul, are you listening? According to sources, Rahul Gandhi had been
briefed about situation and he had promised action, but as in other cases there
was not enough follow up from him. If Rahul and Sonia are really keen about
financial inclusion and inclusive growth, it’s time that they intervened and
broke one more silo that’s preventing people-friendly policies and programmes.
Blocking the Post Bank of India is patently anti-people. If they don’t do it,
it will be a fantastic opportunity for the next government to make an impact.
Perhaps, the BJP should take notes too. http://www.firstpost.com/india/can-sonia-rahul-clarify-why-the-finance-ministry-is-blocking-post-bank-of-india-1422229.html?utm_source=ref_article
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