The proposed post office bank can provide the much-needed basic banking facilities in a simple, friendly way to the illiterate and less literate people across the country. However, there is no definite answer whether the post office will shed its image and work culture to take on to professionally operated commercial banks
After the Women’s Bank, it is the turn of the post office (PO) vying for a licence to convert itself into a full service banking institution in our country. In a country like India, where one-third of the population is outside the realm of banking, more banks are welcome, if it should help in achieving the objective of financial inclusion and bring into its fold all those who do not have access to basic banking facilities in the country. Judged from this criteria, the post office is ideally suited to don the hat of a full-fledged bank on account of its sheer reach into the countryside and the villages of India, which can never be reached for the next ten years through the existing banking institutions of our country.
What are the advantages of converting the post office into a bank?
Here are the figures of the post office compared with banks as on 31 March 2011.
|India Post||Commercial Banks|
|Number of offices||1,55,000||90,263|
|Rural Offices %||90 %||37 %|
|Population per office||7,200||13,400|
|Total no. of deposit accounts||26.45 crore||81.01 crore|
|Total deposits under all a/cs.||Rs6.19 lakh crore||Rs53.90 lakh crore|
Following are the advantages of converting the post office into a full-fledged bank:
1. The post office has a network of 1,55,000 branches throughout the country with 90% of its offices in rural areas. The reach of PO in the rural areas is unmatched, and can, therefore, serve as the best vehicle for financial inclusion of those who are outside the banking system at present.
2. Since the post office has an existing and established business in such large number of rural centres with basic infrastructure in place, it is very easy to convert them into a branch of the post office bank, which will result in considerable savings in both in terms of time and money for the new bank.
3. The POs are already in the business of maintaining savings accounts of over 10 crore people of our country. Besides, put together they have various deposit accounts of over 26 crore of the population, which can serve as a strong foundation for the post office bank to take off and build upon the support of these existing customers and reach break even much faster than a totally new bank.
4. Apart from savings accounts, a number of POs provide various financial services, including postal life insurance, pension payments, senior citizen savings scheme, electronic money transfer services, foreign exchange and a host of other para- banking services, which will add value to the potential customers of the PO bank that could develop into a financial supermarket under one roof in course of time.
5. In fact the post office is considered today as a meeting point for common people in a village and the village postmaster is a friend, philosopher and guide to many people. This, therefore, ideally fits the bill to be converted in to a bank for the common man.
What are the disadvantages of such a move?
1. The PO has been a department of the central government and has been a virtual monopoly, and hence it was run as a public service, without much regard for operational excellence, profitability and customer satisfaction.
2. The PO, though one of the oldest institutions in the country and a monopoly at that till recently, has been an institution working with a low key, as it was run as a government office rather than a commercial enterprise, and hence it could not make any visible, far-reaching impact on the life of common people at least in urban areas, though, postmen does play a prominent role in the life of people in rural areas.
3. With the laid back attitude of the entire organization and slow in innovation, the entire machinery of the PO is not used to the market dynamics of customer relations management and fierce competition prevailing in the field of banking and it will take a long time for the post office bank to come up to the level of public sector banks, who are not only in this field for many decades, but are aggressively planning for an expansion in rural areas, which might prove a tough competition to the post office bank, when set up.
4. Banking is a well regulated, closely monitored and highly sophisticated technology oriented operation requiring skilled manpower, resourceful management and highest levels of corporate governance. The post office bank should be able to gear itself for such upgradation of its operations to meet the expectations of the people, who are not only demanding today but also question the efficacy of customer service, whenever banks falter.
5. Whenever the post office becomes a bank, it is necessary to segregate those functions presently carried out by the post office into those permitted under the Banking Regulations Act, and those which are not, so that the post office bank complies with the regulatory requirements of the Reserve Bank of India (RBI). The form and nature of such segregation requires careful planning and smooth execution to ensure that the proposed bank is able to benefit from the existing businesses of the post office, without burdening itself with the avoidable excess baggage of the post office.
6. The capitalization of the post office bank will be the trickiest exercise for the government. According to the Times News Network, if the existing deposits of the post office are to be transferred to the proposed post office bank, or converting the existing entity itself into a bank, it will require huge capital estimated to be around Rs55,000 crore to meet the regulatory requirements of the RBI. Whether the government is willing and able to shell out such a large capital for one bank, when there are demands from the existing public sector banks for additional capital, is the crucial issue, which requires to be sorted out before setting up this bank. The other alternative of setting up the post office bank as a new entity with a bare minimum capital of Rs500 crore required under the rules, will only result in negating the benefits of the existing business and the infrastructure to the new bank, thereby defeating the very objective of financial inclusion, for which this bank is proposed to be set up. How this catch-22 situation will be resolved will be the test of the government’s seriousness in proceeding with this proposal.
The thrust of today’s banking is financial inclusion, which is the basic requirement for the socio-economic development of our country. And with a large number of our people having no access to basic banking facilities, the only way to expedite provision of banking services in unbanked areas is to expand the existing infrastructure in a manner that can reach out to people as quickly as possible. In this inimitable task, the post office bank is the most suited organization, which can easily penetrate into the villages of our country much faster and be the change agent for improving the life of our people in the countryside. But, whether the PO will be able to face the potential challenges and achieve these lofty objectives can only be realised with the efflux of time, and its true performance as a bank will be the ultimate litmus test.
If the proposed post office bank continues in its path of simplicity and provides the much needed basic banking facilities in a simple, friendly way to the illiterate and less literate people, without the paraphernalia of booted and suited relationship and wealth managers mis-selling toxic and exotic products to the village folk, it will be a great boon for our country men and women. But considering the intricacies involved in converting the PO into a full service bank that can effectively, efficiently and successfully compete with the centuries old public sector banks and the existing and upcoming high-flying private sector banks, whether it will be boon or a bane for the common people can only be known after it is up and running, as the saying goes, “the proof of pudding is in eating”.
(The author is a banking analyst and he writes for Moneylife under the pen-name ‘Gurpur’).