Thursday 14 March 2013
India Post readies plan to start bank
The postal department has appointed Ernst
& Young as consultant for the project and based on the detailed
project report, it will approach the Union cabinet for a final go ahead.
NEW DELHI: The Reserve Bank of India having opened the window for new bank licences, the postal department is finalizing the blueprint to set up a bank of its own at yourneighbourhood post office, a move that will challenge the dominance of large public sector lenders in smaller towns and rural India.
While the department already has a balance sheet of Rs 6.18 lakh crore,
which includes deposits of around 5.5 lakh crore, it is expected to set
up a new entity that will function as the bank. Transferring the
existing deposit base to the bank or converting the entity into a bank
will entail an initial capital base of around Rs 55,000 crore to meet
RBI's requirement, which the government will find difficult to provide.
So, the proposed bank will start with the minimum capital requirement of
Rs 500 crore, said a source familiar with the development.
"This will benefit rural areas enormously. There are nearly 1.55 lakh
post offices and no capital cost of building is required. We are
connecting post offices. As it is, we are offering savings bank in post
offices and this is a natural progression. The matter is under
discussion with the finance ministry and RBI," communications and IT
minister Kapil Sibal told TOI.
The postal department has appointed Ernst
& Young as consultant for the project and based on the detailed
project report, it will approach the Union cabinet for a final go ahead.
A source said that the new entity will have its own board and guidelines
that comply with RBI regulations. Although there are several examples
of postal departments getting into banking — ranging from the German and
Italian model, to those in South Africa and Japan — sources said the
India model will be a lot different given the country's vast
geographical spread and low level of banking penetration.
Among the various suitors, the postal department has one of the
strongest cases to set up a bank given its massive reach across the
country with 1.53 lakh post offices, almost all offering savings bank
facilities. In all, there are 23.3 crore savings bank accounts with
deposits adding up to Rs 3.8 lakh crore at the end of March 2012. "In a
way it is already a savings bank. All that we want to do is make it a
commercial bank," said a source.
The plan is to penetrate rural areas and smaller towns, which is also in
line with the government's stated aim of offering banking facilities in
the hinterland. Over a period of time, services such as investment
banking will be added so that the bank becomes a full-fledgedfinancial services entity.
The postal department has already initiated steps to connect post
offices through an electronic network, which will be useful while
setting up a bank. Connectivity ensures that customers can transact
business through any branch in the country. It has also ordered the
procurement of over 800 ATMs
But manpower issues are going to be a big
challenge. "Getting direction is one thing, developing or procuring
capability is another thing altogether. If the regulator is convinced,
capability will follow," said Ashvin Parekh, partner and national leader
for financial services at consulting firm E&Y. Parekh, however,
refused to discuss the issue further as his firm is advising the postal
department on its banking foray. Source Times of India 14 March 2013.
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