Postman may soon process your loans

Postmen will now also sell bank loans. This will soon begin on a pilot basis through post offices in Maharastra and Goa, amid concerns of the Reserve Bank of India (RBI) that the use of intermediaries, such as post offices and others, raises the issue of agent-related risks.

The post offices in the two states will provide banks intermediary services, such as preliminary processing of loan application by way of identification of customer, verification of address, assessing creditworthiness and credit-recovery mechanism.

The proposal to launch a pilot scheme for the general purpose consumption credit to the farming community utilising network of post offices in the Maharashtra Circle has been cleared under the aegis of the the Indian Banks' Association (IBA).

"Banks will individually sign a memorandum of understanding (MoU) with us as per their particular requirements for coverage in villages and districts where they do not have presence," said K Noorjehan, chief postmaster general, Maharashtra Circle. The Maharashtra Circle includes a network of 12,900 post offices.

Initially, member banks will look at disbursing small unsecured personal loans up to Rs 20,000-25,000 by leveraging on the information available with postmen.

"These will mainly be plain-vanilla loans. For example, a school teacher or a farmer needs a loan for a washing machine or a colour TV. They can use the post office and the repayment structure could be based according to their earning pattern," said K Unnikrishnan, senior vice-president, Indian Banks' Association.

Banks can also channelise priority-sector lendings through this route. The MoUs will include modalities to take care of documentation in case of insurance and renewal of policy required for core loans, such as tractor loans.

The sanctioning of the loan will be done by the bank and disbursed at a nodal bank branch to the applicants accompanied by the postman, who is necessary for the identification process. For repayment, the customer can go to the closest post office and need not go to the branch.

"We are looking at utilising the network of post offices in the Goa region for extending general purpose loans for assets such as pump sets. This is part of the process of financial inclusion to extend banking services without a branch. If successful, we will fine-tune it and enlarge it," said K L Gopalkrishnan, executive director, Corporation Bank.

Corporation Bank is expected to launch the loan scheme by November 27 and will disburse loans of Rs 20,000-25,000, according to a senior postal official. The post office is looking to charge Rs 650 upfront for its services offered in servicing a single loan over a likely two-year period.

While Corporation Bank and Dena Bank are planning to offer small loans, Union Bank of India is looking at utilising the post office network to disburse big loans for purchase of farm equipment such as tractors. HDFC Bank plans to offer loans against security of Kisan Vikas Patrika (KVP) and National Savings Certificate (NSC).

"Insurance requirements for certain loans can be met through the department's tie-up with Oriental Insurance," said Noorjehan. Another scheme on the anvil is for post offices to issue biometric cards.

The RBI, while acknowledging that banks have to reach out to the customer in rural areas through a variety of devices such as the use of post offices, has expressed concern on the issue of agent-related risks that the use of intermediaries such as post offices and others raises.

It has noted that risks, such as operational, legal, liquidity, consumer protection, including resolution of consumer grievances as also those relating to anti-money laundering, have to be addressed.

"Banks will have to conduct the initial training of post office staff, as initial KYC norms will be done by them. The second area to look into is malafide intentions on part of the post office staff, which being a government department will require the post office to have its own mechanism to address," said IBA's Unnikrishnan.

Another issue to be addressed is the process of follow-up to ensure recovery of loans. "It is not our mandate to run after the customers for recovery of loans. As a goodwill gesture, we may use the network to remind the customers," said Noorjehan.

According to Gopalkrishnan, Corporation Bank will look at arrangements under the business correspondent model for follow-up.

Post offices in Maharashtra and Goa will provide banks intermediary services such as preliminary processing of loan applications.

The proposal to launch a pilot project utilising the network of post offices in the Maharashtra Circle has been cleared by the Indian Banks' Association.

Initially, banks will look at disbursing small unsecured personal loans up to Rs 20,000-25,000 by leveraging on the information available with postmen.

The RBI has expressed concern on the processing of loans by post offices citing the issue of agent-related risks.