Not another bank

India Post, the country's inefficient postman and conduit of high-cost savings, wants to run a commercial bank. On the face of it, the organisation seems to have all the essentials in place: a widespread branch network, an infrastructure for handling crores of public money, and some experience in vending retail financial products.

But look at the emerging challenges in banking, and India Post does not have the looks of a winner: it has no understanding of risk; it has only a nodding acquaintance with marketing and customer segmentation; it has no experience whatsoever as a lender.

Savers queue up at post offices because they know it is owned by the government of India and you can't get above-market returns anywhere else.

It can be argued that every organisation can learn to change and be different. In any case, the bank will have an arm's length relationship with the postal operations, enabling it to develop its own professional cadre and service-oriented ethos.

However, look closer, and what this argument boils down to is this: We have the necessary real estate in place, so let's start a bank. Nothing wrong with even this. If petrol pumps can start convenience stores and house ATMs, India Post can do banking.

But in either case, what you are effectively trying to do is leverage your reach. Learning to be a bank is something else. Otherwise, Bharat Petroleum and Bata have as much reason to start a bank as India Post.

On the other hand, if one is clear that reach is the main advantage, India Post can lease out its premises to any bank (or banks) for a fee or a share of profits without running any of the risks.

In the process, it can also use the bank's branches to sell many of its own products. It is more logical even for the government to use banks, and not just post offices, to sell products like NSCs and Kisan Vikas Patras when the former already market PPF and Savings bonds.

The main impetus for change at India Post comes from the high losses on postal operations. The organisation ran a deficit of Rs 1,364 crore in 2002-03, and there is a realisation that sooner or later the government will be unwilling to continue this subsidy.

With email, cellphones and courier agencies posing a major threat to its existence, India Post has to reinvent itself. One answer may be to become a bank. Another is to leverage its reach and earn commission income from selling other financial products.

A third option is to stick to the knitting and use technology to become a low-cost deliverer of messages and mail for anyone who wants it. A post-card or letter is expensive to print and move around in physical form; when scanned and digitised, messages and images can be delivered quickly and efficiently anywhere in the country for a fraction of the old cost.

It is these kinds of ideas India Post needs to consider. India doesn't need another bank when all the existing ones are trying to consolidate and stay afloat.