It seems unlikely that India Post, which runs the nation's post offices, will secure a banking licence when new ones are announced soon - otherwise the Union Budget would have provided for its capital. This is a pity, but the silver lining is the reported thinking of the financial regulator, the Reserve Bank of India (RBI), to put new banking licences on tap henceforth, so that if you have been unsuccessful in one round, you do not have to wait for years to have another go.
Even greater hope flows from the fresh thinking in the Nachiket Mor committee's report on financial inclusion, which seeks to escape the current straitjacket of thinking only in terms of commercial, regional and cooperative banks. Instead, it visualises a whole new set of entities - such as consumer, wholesale and payments banks - so that specialised set-ups can manage risk and liability at affordable cost, while helping to meet the goals of universal banking and financial inclusion.
If there is still hope, it is necessary to outline what capabilities India Post has that should make it an important player in the battle to spread financial inclusion. (When the idea of issuing fresh banking licences was first mooted, it was justified on the grounds of taking organised financial services to those who remain out of it.) It is also necessary to examine the validity of the logic behind the government's decision not to have an interest in a "Post Bank of India".
The Cabinet seems to have gone along with the Union finance ministry's feeling that the postal department, or India Post, does not have the expertise to run a bank. This is true, but this argument takes a static view of things. It is futile to think that a few new commercial banks, in the same mould as the existing ones, will enable the system to deliver on the promise of financial inclusion.
If you use the past as a guide to the future, serious thought should be given to whether the department of financial services, which has pronounced on India Post's management inadequacies, should be left to play the owner's role for public sector banks. Even as their non-performing assets are mounting rapidly, these banks are in a mess (the new private sector banks are doing much better) under the department's watch. If the Indian citizen, who is the ultimate owner of the banks, were to think like ordinary shareholders, he would be well advised to look for a new set-up to exercise oversight on his behalf.
What has India Post to show for itself? The postal network already does a lot of bank-like deposit-taking and payments. It handles savings schemes, sells tax savings instruments, accepts public provident fund deposits, and disburses benefits under the employment guarantee and other schemes. The postal network has 140,000 rural post offices, whereas commercial banks have under 30,000 rural branches. India Post has 470,000 employees, of whom 260,000 are gramin dak sevaks and the remaining, 210,000, are departmental staff. India Post is a rural-centric organisation with extensive rural infrastructure and staff (yes, they need training) in place, whereas commercial banks are heavily geared towards urban India - their employees consider a rural posting a punishment.
It is not as if India Post is in good shape. It runs at a big loss. In 2011-12, it ran a revenue deficit of Rs 5,800 crore. This was actually an improvement, down 8.5 per cent from the previous year's deficit. In the same year, the overall mail traffic declined by 3.7 per cent, though the number of "premium products", such as Speed Post, increased by 42 per cent. Even Speed Post is a big loser; it costs Rs 51 to deliver a Speed Post item, but the revenue earned from it is only Rs 23. So not only are people writing fewer letters, India Post loses heavily in the space where private courier companies thrive. Since the government cannot wish away 470,000 employees and there is a crying need for financial services in rural India, there is scope to figure out how the India Post infrastructure can be used to deliver these financial services.
The Nachiket Mor committee floated the idea of payments banks, which can handle payments and deposits. Airtel Money works with prepaid wallets in this space and M-Pesa in Kenya is a widely-copied model. There can also be national consumer banks, which give large numbers of small loans with the help of credit scoring and credit reporting. Microfinance institutions are already advancing large numbers of small loans to rural women with very high rates of recovery. If a Post Bank of India is to succeed in its financial inclusion mission, it has to be imaginatively structured and its leaders should be chosen from among social entrepreneurs with a background in commercial banking. They exist (Ramesh Ramanathan of Janaagraha-Janalakshmi and Samit Ghosh of Ujjivan), but don't expect the finance ministry to find them.
subirkroy@gmail.com
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