From posting parcels to delivery of banking services, will India Post succeed?

Your khaki-clad neighbourhood postman will now handle your bank account.

Prashant, a 30-year old postman flaunting a mobile phone and biometric device in his hands, says, "I am happy that we are becoming a bank. Our image should change..."

Once ubiquitous in the life of most Indian citizens, the 164-year-old India Post has come a long way into becoming a bank earlier this month. The country’s government-owned postal service, which has fallen into its traditional public sector mould, now attempts to resurrect into a common man’s tech-savvy doorstep banker.

Even as many see payments bank devoid of a business model, a senior India Post official said the payments bank aims to break even in two to three years. The government has approved capital infusion of Rs 1,435 crore. Will this money help revival or go down the drain?

“One of the important functions of the Bank is to accept deposits from the public. In fact, depositors are the major stakeholders of the banking system. This is even more important for India Post Payments Bank (IPPB or ‘the Bank’) as acceptance of deposits is a critical focus area of the Bank’s business,” IPPB said in its Comprehensive Deposit Policy document.

At present, about 50 percent of India still lacks access to basic banking services.

Experts suggest that garnering deposits will be easy given its reach and trust among people, but retaining that trust with convenience of services along with delivering the right facility in the most efficient way, will be key.

“Two things will be critical to start with: Deposits and Payments via remittances. Then they (bank) can cross-sell small products like insurance and other financial products, which has potential to generate fee-based income,” says Vijay Chugh, former Chief General Manager, Department of Payment and Settlement Systems at RBI.

He says we have a combination of extreme needs of a country which the bottom of the pyramid needs through physical assisted mode and to the urban population that which is technologically savvy. India Post can service both ends as they have a relationship with both among others... A Payments bank and business correspondent (BC) model will work.”

Indian postal service to India Post Payments Bank

Set up in August 2016 as a 100 percent government-owned public limited company under Department of Posts, IPPB is aimed at making banking easy for ordinary citizens.

After pilots in Raipur and Ranchi since January 2017, IPPB was finally launched on September 1 with 650 branches and 3250 access points (Post Offices). The institution will spread its footprint and leverage the vast postal network of almost 1.55 lakh post offices with the help of over 10,000 postmen to begin with.

“We aim to have one branch in every district and are giving training to all our postmen to handle the mobile and biometric device to open current/savings account with the help of just the PAN and Aadhaar number,” said HC Agrawal, Chief Postmaster General, Maharashtra Circle.

What is a payments bank?

In 2013, the Reserve Bank of India (RBI) announced a new round of differentiated banking licences — Small Finance and Payments Bank.

A payments bank is like any other bank, but operating on a smaller scale without any lending activities like giving loans or credit cards. It can accept demand deposits up to Rs 1 lakh, offer remittance services, facilitate utility bill payments, mobile payments/transfers, enterprise and merchant purchase and sale transactions, direct benefit transfers (DBT) and third-party fund transfers.

A long-time aspirant, Department of Posts was among the 11 entities that got the final licence in 2015 with an objective to increase financial inclusion by providing small savings accounts and payments/remittance services to migrant labourers, low-income households, small businesses and other unorganised sector entities.

Of the 11 entities, Airtel, Paytm, Fino and Aditya Birla Idea Payments Bank have launched services. Three firms gave up their licences and didn't venture into the sector.

What will work for India Post?

The biggest advantage for India Post is its physical presence, distribution and trust factor among the public in the country.

On an average, a post office serves around 10,200 people. In contrast, a bank branch serves around 14,580 people.

According to the India Post annual report 2017-18, IPPB will offer services through a mix of physical and digital platforms. Channels for delivering services will include:

• Counter operations
• ATMs/micro ATMs
• Doorstep, mobile and internet banking
• Pre-paid instruments such as mobile wallets, Point of Sale (PoS) machines, MPoS (mobile PoS), etc.

For now, IPPB has tied up with Bajaj Allianz Life Insurance to offer life insurance products and PNB Met Life for Pradhan Mantri Jeevan Jyoti Bima Yojana.

Agrawal said, “We plan to tie up with co-operative diaries, vegetable and fruit mandis (sellers’ wholesale market), dabbawalas (tiffin service operators) and fishermen for them to avail our services.”

Further, the increased use of providing cash subsidies through DBT by the government could grow the bank’s business in multiples.

At present, India Post has a rural India penetration of 1.30 lakh access points, which is nearly 2.5 times the number of bank branches in rural India today, India Post claims.

On the human resource front, IPPB has a large workforce of 3 lakh postmen and gramin dak sevaks (GDS) in every district, town and village of the country to provide banking services.

“If 300,000 postmen operating as business correspondents (BC) capture even two remittance transactions on a daily basis, that is 600,000 transactions at the rate of Rs 20 per transaction (it works to Rs 1.2 crore per day revenue)...”

The bank has plans to recruit about 3,500 personnel for various positions across the country in the next few months.

On the day of launch in Maharashtra, Ganesh Sawaleshwarkar, Postmaster General, Mumbai region, said, “An incentive-based system is being worked out for additional remuneration to the postmen doing additional duty of doorstep bank account opening and payments for customers.”

The road ahead

To start of, India Post had registered an increase in its revenue deficit at Rs 11,970 crore for 2016-17 as against deficit of Rs 6,007 crore for 2015-16, as per its annual report.

This is a direct consequence of increase in usage of mobile phones and e-mails that has now made physical letter-writing or such communication almost redundant (except for government usage) and also entry of more efficient private courier services and remittance players.

Chugh says, “The first and foremost is the PSU-nature. The key task will be how to incentivise these people to outperform their own performance of the past. If that model works, we can achieve success.”

Training of the employees in technology and banking knowledge will also be key. As of now, about 805 postmen have been trained into using the mobile and biometric devices.

Moreover, competition from the four private players exists.

“Competition will be there but we need to remember that my postman is closer and friendlier to me than an Airtel or Vodafone boy. So the well-recognised khaki dress with a much smarter look will reinstate faith and has the potential to serve customers much better than the competitors,” Chugh adds.