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LATEST NEWS UPDATES | India Post readies plan to start bank -Sidhartha & Saurabh Sinha

India Post readies plan to start bank -Sidhartha & Saurabh Sinha

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published Published on Mar 14, 2013   modified Modified on Mar 14, 2013
-The Times of India

The Reserve Bank of India having opened the window for new bank licences, the postal department is finalizing the blueprint to set up a bank of its own at your neighbourhood post office, a move that will challenge the dominance of large public sector lenders in smaller towns and rural India.

While the department already has a balance sheet of Rs 6.18 lakh crore, which includes deposits of around 5.5 lakh crore, it is expected to set up a new entity that will function as the bank. Transferring the existing deposit base to the bank or converting the entity into a bank will entail an initial capital base of around Rs 55,000 crore to meet RBI's requirement, which the government will find difficult to provide. So, the proposed bank will start with the minimum capital requirement of Rs 500 crore, said a source familiar with the development.

"This will benefit rural areas enormously. There are nearly 1.55 lakh post offices and no capital cost of building is required. We are connecting post offices. As it is, we are offering savings bank in post offices and this is a natural progression. The matter is under discussion with the finance ministry and RBI," communications and IT minister Kapil Sibal told TOI.

The postal department has appointed Ernst & Young as consultant for the project and based on the detailed project report, it will approach the Union cabinet for a final go ahead.

A source said that the new entity will have its own board and guidelines that comply with RBI regulations. Although there are several examples of postal departments getting into banking — ranging from the German and Italian model, to those in South Africa and Japan — sources said the India model will be a lot different given the country's vast geographical spread and low level of banking penetration.

Among the various suitors, the postal department has one of the strongest cases to set up a bank given its massive reach across the country with 1.53 lakh post offices, almost all offering savings bank facilities. In all, there are 23.3 crore savings bank accounts with deposits adding up to Rs 3.8 lakh crore at the end of March 2012. "In a way it is already a savings bank. All that we want to do is make it a commercial bank," said a source.

The plan is to penetrate rural areas and smaller towns, which is also in line with the government's stated aim of offering banking facilities in the hinterland. Over a period of time, services such as investment banking will be added so that the bank becomes a full-fledged financial services entity.

The postal department has already initiated steps to connect post offices through an electronic network, which will be useful while setting up a bank. Connectivity ensures that customers can transact business through any branch in the country. It has also ordered the procurement of over 800 ATMs

But manpower issues are going to be a big challenge. "Getting direction is one thing, developing or procuring capability is another thing altogether. If the regulator is convinced, capability will follow," said Ashvin Parekh, partner and national leader for financial services at consulting firm E&Y. Parekh, however, refused to discuss the issue further as his firm is advising the postal department on its banking foray.

The Times of India, 14 March, 2013, http://timesofindia.indiatimes.com/business/india-business/India-Post-readies-plan-to-start-bank/articleshow/18960452.cms


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