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India Post to Post Bank of India?

Posted in Finance Articles, Total Reads: 4260 , Published on January 21, 2014

Since the year 1858, the Department of Posts (DoP) has played a vital role in the country’s socio-economic development and has is responsible for the nations’ communication system. It reaches the Indian mass through several ways. Government of India provides services for citizens such as Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) wage disbursement and old age pension payments. Such services are carried out by the Department of Posts. With 1,55,015 Post Offices, the DoP has the most widely distributed postal network in the world.

Image Courtesy: freedigitalphotos.net, worradmu

Since, independence India Post has been providing a variety of services ranging from mail services, financial services and retail services. Below are the functions of India Post:

There are 26 applicants applying for RBIs banking license including companies having big pockets like TATA, RELIANCE to financial services, and micro-finance lenders to NBFC’s like L&T finance holdings. India post is one of the contenders who has strongest network in villages. India Post can leverage its customer base in rural areas. But with comparison with other players India Post does not have any knowledge about giving credit or risk management. Also Post Office is now going to enter into banking segment that would need complete Business Process Reengineering. It also comes under government of India so it’s not aware of private corporate culture. There are few guidelines which company should follow after becoming bank. Consulting is needed to help India Post adhere RBIs guidelines and become efficient bank.

Infrastructural Challenges faced by India Post

The Internet has affected the basic functions of the post offices like delivering letters and mailing other things. India Post faced challenges like -

• timely mail delivery and money orders

• considerable transaction time at counters

• It needed improvement in customer satisfaction in terms of cleanliness, citizen charter

On the ‘Look and Feel’ front there was a need to ensure

• uniform brand hierarchy and provision of ICT services in all offices

• The operational and soft skills of the staff required enhancement

• Infrastructure had to be more standardized

‘Project Arrow’ is an attempt to solve these issues of India Post. The work methodology at India Post is traditional with manual practices. The staff needs to undergo training to get acquainted with the modernized techniques to be implemented.

India Post’s Financial Strength – Statistical Data

Whether we talk about the requirement of Rs. 500 crore paid-up equity capital or a maximum of 49% foreign holding or minimum of 25% rural coverage, the numbers play a big role in the banking sector. RBI published these new banking guidelines in February this year for licensing of new banks in the private sector.

Many different analysts argued the norms specified by RBI to be tough but a welcome step to uplift the Indian banking sector. RBI is ensuring that all new banks will follow the prudential norms and it has made sufficient checks and balances in this area. The other major requirement proposed by RBI targets the unbanked rural areas to focus on the priority sector where a minimum of 25% floor is specified. If financial inclusion is taken as the deciding factor by RBI to give licenses, then India Post will prove to be a frontrunner among all the applicants.

Out of 26 applicants for the bank license, 10-15 odd aspirants are very serious about meeting all the guidelines furnished by RBI and their numbers also speak volume. However, the New Delhi office of Department of Posts (India Post) is not very worried about the financial numbers. Even though it has to fight out with some big financial conglomerates in getting the license but with a huge customer base in micro-rural, rural, urban and developed cities and also with high level of trustworthiness among government institutions, India post has to mainly work towards a proper management system.

In terms of reach, Exhibit 1 shows the numbers of post offices in entire India. As per the latest Annual Report of India Post, a single post office covers 21.23 sq. km, on an average. All the urban as well as rural post offices are equipped with latest technology and solutions. Internet & Mobile Banking, WAN connectivity, ATMs are present for the public service. Apart from that, rural post offices also have fingerprint, smart card and bar code readers and scanners.

Government of India is planning to fund INR 1300 crore to enable DoP to form India’s first Post Bank of India. The requirement of initial INR 500 crore equity capital would be easily managed by DoP, which plans to launch its banking operations with 50 branches in the first year to 150+ branches in next four years. Currently, India has over 90,000 branches of different banks but after inclusion of India post into the banking industry, its branch base would get tripled. India’s largest nationalized bank, State Bank of India, has over 15000 branches. India Post will still be larger than SBI even if it just decides to convert only 10% of its branches into banks.

Amongst all the applicants who have applied for banking license, Department of Posts is already having the core banking experience and massive customer base. It provides varied number of financial services such as Savings Scheme through Post Office Savings Bank (POSB), Instant Money Order (IMO), Investment options using mutual funds, international money transfer, pension schemes and many more. POSB functions like a bank by providing variety of savings options such as Savings Accounts, Recurring Deposit (RD), Time Deposit (TD), Public Provident Fund (PPF) etc. It not only has a very big portfolio in terms of outstanding balance but also has a huge customer base of over 260.16 million account holders.

Exhibit 2 shows the different savings schemes including their respective accounts and outstanding balance of POSB as on 31.03.2012.

India Post earned total revenue of INR 78993.47 million in 2011-12 out of which 54.5% comes from its Savings Bank and rest from sale of stamps, postage realized in cash, commission on money orders and other receipts. Exhibit 3 presents the revenue details of India Post for year 2010-11 and 2011-12 with their respective growth in each functional area.

With its strong customer reach all over India and its well-established savings bank, India Post has a strong financial strength to open a nationalized bank. Not only, it has the rural reach (Exhibit 4), which is the most important criteria RBI will consider, it also has prior experience in the field of banking operations.

Exhibit 5 presents the story of other banks in the rural sector of India. Exhibit 5(a) provides the data of private sector banks in the rural and semi-urban sectors of India in quarter of June’12. Data shows that these banks do not have required reach in Northeastern, Eastern and Central regions of India because of certain political and social reasons. India post, with its already set base, could strategically focus upon these areas. Then, Exhibit 5(b) shows advances of private sector banks to agriculture and weaker sections of India in year 2011. This provides a picture that old private and big banks of India, such as Axis Bank, HDFC Bank and ICICI Bank are contributing more to the rural sector of India as compared to newly developed private banks like Yes Bank and Kotak Mahindra Bank.

Successful stories of Postal banks across countries

The postal banks cover and tap the under-banked, unbanked rural populations. Many of the countries have been successfully running the postal banks. For example in 2001 Australia’s larger banks controlled the New Zealand’s retail banking. The initiative was taken by the New Zealand government and opened state governed banks (Kiwibanks) in the post offices. Today Kiwibank is the only bank competing against the Australia’s banks and receive highest customer service ratings.

In the world, Japan Post was largest holder of personal savings in 2007. It is one of the largest employers in the country. Many other postal banks include Switzerland’s Swiss Post, Russia’s PochtaBank, Brazil’s ECT, China’s Postal Savings Bureau etc.


Financial inclusion and rural reach is the major merits of postal banks. This will lead to availability of the financial resources in the rural areas, which will positively impact the society. To convert India post to Post bank of India (PBI) needs adherence of lots of guidelines by the RBI. India Post need efficient and effective operational activities, banking services or products, hardware installations, software designing for automation, automated mailing system, data handling, customer care, consulting various actors from government and corporate as well, security issues, and infrastructure building. Planning would be the first phase and then would come the implementation part with regular maintenance and modernization in processes.

This article has been authored by Anuj Arora and Himanshu Garg from IMT Ghaziabad










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