Financial services form a large chunk of the 150-year-plus India Post’s operations and revenue, and include banking, saving schemes and certificates, postal life insurance and the India Post Payments Bank (IPPB).
Not many may know that the post office savings bank services and postal life insurance have been in existence since the 1800s. The savings bank was launched in 1882 and postal life insurance in 1884. In comparison, the payments bank is a newborn, just 3.5 years old.
As traditional postal services such as inland letters and postcards dwindled, financial services held fort for the department. The banking section, especially, has been popular among lower and middle-class people looking at small savings options as well as among those who are not comfortable with mutual funds and the stock market.
Praveen Gupta, 75, a retired government employee, has been investing in savings schemes for decades. “I find it difficult to invest my hard-earned money in places where risk is involved. I do not understand stocks and mutual funds. For people like me, it is the best option.”
Savings section: India Post’s mainstay
The savings section offers facilities such as a savings bank account, recurring deposit (RD), time deposit (TD), monthly income Scheme (MIS), senior citizens savings scheme account (SCSS), public provident fund account (PPF), sukanya samriddhi account (SSA), national savings certificate (NSC) and kisan vikas patra.
In 2019-20, savings bank schemes and certificates yielded revenue of Rs 8,660 crore, nearly 64 percent of the Department of Posts’ total earnings of Rs 13,558 crore in that financial year. The total earnings included revenue from the sale of stamps, postage realised in cash, commission on money orders and Indian postal orders, etc.
In 2018-19, the savings section yielded Rs 8,660 crore, the same as the previous fiscal, Rs 7,085 crore in 2016-17, Rs 7,783 crore in 2015-19 and Rs 6,670 crore in 2014-2015.
The department’s total revenue was Rs 13,482 crore in 2018-19, Rs 11,511 crore in 2016-17, Rs 12,939 crore in 2015-16 and Rs 11,635 crore in 2014-2015.
As on March 30, 2020, the savings section, including RDs, PPF, TDs, MIS, etc., had a balance of Rs 8,23,203 crore. Tax savings certificates such as NSC and Kisan Vikas Patra had Rs 2,42,929 crore, according to the 2020-21 annual report.
As far as insurance is concerned, the postal life insurance section had procured 2.45 lakh (.245 million) policies in 2020-21 compared to 2.88 lakh (.288 million) in 2018-19. Premium income was Rs 8,087 crore in 2020-21 and Rs 7,978.35 crore in 2018-19.
Rural postal life insurance procured 6.2 lakh (.62 million) policies in 2020-21 and 7.69 lakh (.769 million) in 2018-19. Premium income was Rs 2,820 crore in 2020-21 and Rs 2,418 crore in 2018-19.
Uphill task ahead
But will the postal department be able to withstand stiff competition from modern bankers and fintech companies considering that the new generation is more inclined towards investing in new-age financial schemes, mutual funds and stocks? And what should be its USP, in that case?
“There is no question of competition with private financial institutions and banks. We have a social obligation to meet, unlike the others,” said a senior postal department official, who did not want to be named.
“We are there for the population that banks on small savings, in the remotest of places, be it the post office’s schemes or the payments bank. Where will these people go if we do not serve them?” the official said. “We have a reach no private bank has.”
The same logic goes for the postal services, the official said. “We are present where no private courier can even think of reaching, and at a nominal cost. No private courier will set up shop in a remote village. But we have to keep the communication chain connected.”
Sanjay Swamy, a fintech expert, feels otherwise. He said financial services for the masses were still under-penetrated and the main expectation from India Post was that it had a large network of door-to-door “agents” that could be retrained and activated to rope in consumers for basic services such as cash-in, cash-out, and other doorstep-banking activities.
“However, with the pandemic, and the shift from cash, that initial premise is no longer valid,” said Swamy, co-founder and managing partner of Priven Advisors, investment advisory to Prime Venture Partners, a venture fund.
A former banker, who has worked with several international banks, echoed that view. ”Yes, India Post has a huge network of post offices that can work as branches. But with banking going online, and people embracing smartphones even in villages, the need for physical banking will die a slow death.”
New kid on the block
In fact, the growing trend of online banking and digitalisation had prompted India Post to launch its payments bank — first as a pilot project in Jharkhand in 2017, and then across India in 2018 — to take digital banking to the doorstep in the remotest corners of India by leveraging the vast post office network.
The IPPB has enabled more than 136,000 post offices, including 110,000 in rural India, to provide a complete suite of banking services. More than 1.89 lakh postmen and gramin dak sevaks are equipped with smartphones and biometric devices to provide doorstep banking services and small cash withdrawals to nearly 50 million account holders, half of which are women.
Nearly Rs 17,000 crore was disbursed from Aadhaar-enabled accounts during the Covid-19 pandemic via the payments bank across India, especially in rural areas, where 90 percent of its customers reside.
But despite these promising statistics, the payments bank is yet to make profits even three-and-a-half years after its inception.
In the financial year ended March 31, 2021, IPPB had generated revenue of Rs 213 crore, Rs 54 crore in 2019-20, Rs 48 crore in 2018-19 and Rs 39 crore in the previous fiscal.
Expenditure was far higher, amounting to Rs 533 crore in 2020-21, Rs 388 crore in 2019-20, Rs 213 crore in 2018-19 and Rs 38 crore in 2017-18.
The payments bank incurred a loss of Rs 320 crore in 2020-21, Rs 334 crore in 2019-20, Rs 165 crore in 2018-19 and Rs 97 lakh in the previous fiscal year.
Another industry expert, who did not want to be named, said the whole premise of setting up another payments bank was wrong when India Post could have upgraded and reformed the existing banking system, which has an online arm, to meet new-age challenges.
“Why did they have to set up another payments bank? They are now neither here nor there. Duplication is adding to the costs. They will have to first decide whether they want to be a full-fledged bank or continue with what they are doing now,” the industry expert said, adding that the government should end the duplication and give more autonomy to India Post to compete with private banks.
The senior postal official quoted earlier differed, saying the payments bank is a new venture and has a seven-year target to break even. “We are growing steadily and getting more customers. There’s still time.”
Account-wise, IPPB is getting more people on board. On March 31, 2020, the bank had 2.36 crore (23.6 million) customers, which grew to 4.31 crore (43.1 million) on March 31, 2021, amounting to 83 percent year-on-year growth, according to IPPB’s annual report. In March 2019, it had just 55 lakh (5.5 million) accounts. ”Today, we have nearly five crore (50 million) accounts,” the official said.
As of March 31, 2021, IPPB had deposits of Rs 2,300 crore compared to Rs 855 crore on March 31, 2020. In March 2019, IPPB had deposits worth Rs 93 crore .
Expenses are rising, as is the deficit
One major reason for the postal department’s huge deficit, which is rising every year, is its expenses, mostly comprising salaries, pensions and operations. In fact, the department’s net expenditure is much higher than the revenue generated.
The net expenditure, which includes general administration, operations, salaries, agency services and others (audit and accounts, civil engineering, amenities to staff, stationery and printing, etc) was Rs 17,894 crore in 2014-2015 and grew gradually. It was Rs 18,946 crore in 2015-16, Rs 23,480 crore in 2016-17, Rs 27,129 crore in 2018-19 and Rs 28,371 crore in 2019-20.
The deficit has grown over the years. It was Rs 6,258 crore in 2014-2015, Rs 6,007 crore in 2015-16, Rs 11,969 crore in 2016-17, Rs 13,646 crore in 2018-19 and Rs 14,813 crore in 2019-20.
India Post has more than 400,000 employees, the postal official said, explaining the expenditure. “More than 90 percent of the expenses go into salaries and pension; 2.5 lakh (.24 million) employees get pension. We pay salaries and increments irrespective of whether we make money or not.”
“We are not like any other private company, where salaries are linked to their financial performance. It is not that revenue is not growing, but the expenses are also huge,” the official explained.
Is there a way out?
So, what is the way out? Is it possible for India Post to come out of the red? The voices differed.
“The financial services sector is where the future lies. With a proper strategy in place, India Post, with its reach and last-mile connect, has huge potential in this segment,” says Navin Surya, Chairman, Fintech Convergence Council.
According to the postal official, interest rates have to increase for the small savings sector to grow. “But even then, we have about 25 crore (250 million) savings accounts and are getting new customers. About Rs 12 lakh crore is mobilised through different forms of small savings. This is not small money,” the official said, adding that if India Post has to compete, it has to be converted into a company with complete autonomy.
The industry expert quoted earlier said India Post is one of the country’s largest units, with access to the largest number of consumers. In terms of access and reach, there is no one better, not even State Bank of India.
“But when it comes to banking reforms, there is a lot more to be done,” the expert said, adding that sound planning and less government interference can help make it become the largest bank.
Swamy, however, says he does not see too many other benefits from the postal network because it isn’t sophisticated and does not have a highly trainable network of agents. He, however, feels it will be the front-runner for any services related to government and non-banking PSU partners. “They should try and become agents for all such companies rather than try and compete on commodity services.”
An official with a private courier company said that though India Post embraced tech, it was a trifle late. “But it can do well to be efficient, reduce complaints and train its manpower in modern-day courier services if it wants to compete.”(The author is an independent journalist and content creator based in Delhi)