India Post Payments Bank – RSTV: In Depth

Participants:

Anchor: Teena Jha

Importance of this Episode:

  • On September 1, 2018, Prime Minister Narendra Modi launched the ‘India Post Payments Bank’ – an ambitious initiative aimed at making banking services available at every Indian’s doorstep.
  • This payments bank of the Indian postal department, will work through its huge network of post offices and nearly 3 lakh postmen and ‘Grameen Dak Sewaks’.
  • The new payments bank will offer a range of products such as savings and current accounts, money transfer, direct benefit transfers, bill and utility payments, and also enterprise and merchant payments.
  • These products and services will be offered through multiple channels like counter services, micro-ATM, mobile banking app and SMS, using the bank’s state-of-art technology platform.
  • Further, by December 2018, all 1,55,000 post offices will be used as axis points to provide banking services. Prime Minister Narendra Modi says that the India Post Payments Bank (IPPB) will bring about a huge change in the country’s economic as well as social situation by reaching every nook and corner of the country.
  • In this article, we take a look at what is a payments bank? How is the India Post Payments Bank different from other such entities?  What are the services that it offers? And how does it aim to revolutionise banking and digital payments in India?

Analysis by the Experts:

 

  • The India Post Payments Bank (IPPB) is a service that enlists the might of the country’s postal department in expanding financial inclusion to the masses. As of now, it is available through 650 branches and 3250 access points. The Government owns 100% in IPPB which has been setup under the aegis of the Department of Posts, and will offer products and services through multiple channels such as counter services, micro ATM’s, mobile banking App, messages and interactive voice response.
  • The India Post Payments Bank (IPPB) launched by PM Modi aims to make banking more accessible to the citizens of the country. Through the vast network of post offices, its objective is to bring the rural population into the country’s financial system.
  • At present it has 650 branches and 3250 access points across the country. By the 31st of December this year (2018), all of India’s 1,55,000 post offices will be linked to the IPPB system. Of these, 1,30,000 access points will be located in rural areas, taking it to a vast, untapped market.
  • IPPB also has the provision to link it with over 17 crore postal savings bank accounts with its own setup.
  • As part of the initiative, around 3 lakh postmen and ‘Grameen Dak Sewaks’ will offer services and financial guidance to customers in places where banking facilities are not available.
  • The postal department has a rural penetration of 1,30,000 post offices. This is almost 2.5 times higher than the number of banks in these areas.
  • IPPB has also partnered with different financial organizations to provide loans, investments and insurance products. It will leverage the infrastructure of the Reserve Bank of India, National Payments Corporation of India and will use the Aadhar for signing up new users, thereby reducing extraneous cost.

 

The India Post Payments Bank has been incorporated as a Public Sector Company under the Department of Posts with 100% Government equity and is governed by the Reserve Bank of India.

Before the launch, the Union Cabinet approved an 80% hike in spending on IPPB to 1435 crore rupees. Arming it to compete in the market with existing operators like Airtel Payments Bank and Paytm Payments Bank. The increase is meant to cover costs relating to technology and manpower.  

Leveraging the vast network of post offices throughout the country, the government’s intention is to make banking facilities available at the doorstep of every Indian citizen with the help of a workforce of 3,00,000 postmen. With your local postman carrying a handheld device, that can capture a QR code, a biometric proof of ID, people can expect to withdraw cash from the comfort of their homes. After opening an account at the nearest post office, using their Aadhar card.

What are the other services that will be made available through the India Post Payments Bank (IPPB)?

  • The IPPB is like any other bank but on a much smaller scale. However, it does not involve any credit risk. Opening up an account in the IPPB is also simple- it can be done through the mobile App just by providing details like your Aadhar number with KYC verification. One of the most distinct features of the India Post Payments Bank (IPPB) is its doorstep banking service, which makes it very accessible. Through this model, banking has the potential to reach the doorstep of every Indian citizen.

IPPB Services:

  • The doorstep banking facility will offer a range of services including: account opening, cash deposits and withdrawals, money transfers, recharge and bill payments, third-party services like insurance, loans and investments and other account related services.
  • The account related services include: updating PAN and nomination details, requesting account statement, and issuing standing instructions.
  • The IPPB will also offer RTGS, IMPS and NEFT services for the transfer of funds.

Salient Features:

The many salient features of the IPPB include:

  • No fee for withdrawals made from IPPB ATM or PNB ATM since it has a tie up with Punjab National Bank.
  • The IPPB offers three types of savings accounts: regular, digital and basic.
  • The bank will offer 4% interest rate in all the savings accounts.
  • It also offers Forex services at lower charges.
  • Unlike most banks, there will be no need to maintain a minimum quarterly average balance.
  • There will be no charges for the lack of a minimum account balance.
  • The IPPB also offers a QR card service that will help one access their bank account and make transactions without having to remember their account number.
  • Using the QR card, all transactions can be authenticated via a biometric verification.
  • The IPPB also offers a free debit card with an annual maintenance fee of Rs. 100/- from the second year.
  • Using a network of post offices, and the services of over 3,00,000 postmen, the IPPB will reach customers without the traditional bank branches. Through the other banks or companies that it has tied up with, IPPB will provide third-party products like loans and insurance.
  • In the absence of traditional bank branches, the IPPB aims to reach its customers through their mobile phones. That is why it has the chance to flourish among people who are tech savvy and comfortable with technology. The IPPB will encourage anyone above 18 years of age to open digital savings accounts, using their Aadhar and PAN cards. The KYC formalities for such accounts must be completed within 12 months.
  • Once the KYC formalities are done, the digital savings account will be upgraded to a regular savings account. As far as deposits are concerned, customers are allowed a maximum yearly cumulative deposit of 2,00,000/- Rupees, in the account. Post offices have also been permitted to link the 17 crore Postal Savings Accounts with the IPPB accounts. The India Post Payments Bank (IPPB) will benefit those sections of society that remain outside the banking sector like migrant labourers and low income households.
  • With the government allocating additional funds to meet the requirements of the operations of the IPPB, it is looking to compete with Private Payment Banks.

Challenges that the IPPB faces:

  • Considering the vastness of the India Post Payments Bank (IPPB), there are bound to be some challenges  that it will face, and these are not mere teething troubles. Burdened with the legacy of the India Post, the IPPB would take some time before it can showcase its fullest capabilities. In the financial year 2016-17, India Post had a revenue deficit of Rs. 11,969/- crores. In the financial year 2015-16, India Post had a revenue deficit of Rs. 6,007/- crore rupees. Thus the revenue deficit in 2016-17 was almost double that of the financial year 2015-16.
  • As per RBI rules, all payments banks are required to invest 75% of their total demand deposits in government-linked securities and treasury bills, making it difficult for IPPB to turn a profit.
  • Another challenge is the lack of tech-infrastructure in the country’s remotest rural areas. However, the Government is confident that it will be able to overcome these hurdles and that the IPPB will be a successful venture.
  • The launch of the IPPB has marked a tectonic shift in India’s banking landscape- opening doors of rural India to endless possibilities in the banking sector. However, the mammoth government initiative does have some hurdles that need to be crossed and which seem to be more than mere teething troubles.
  • Another major challenge facing the India Post Payments Bank (IPPB) is its infrastructure. The biggest being in remote rural areas. With the plan of making the postman a mobile bank, it seems difficult in areas where electricity and internet connectivity are an issue.  With 90% of the post offices situated in rural areas, this is a challenge that may need urgent attention.
  • One would also need to ensure adequate training to the staff. There are frequent power failures in rural areas, thus to run all these services in a seamless manner and without any disruption, proper infrastructure and facilities are required.    
  • Further, the department of Posts is facing a lack of manpower as well. There is a shortage of manpower to the tune of 40%.
  • The IPPB activities will also be run through postmen, but there is an acute shortage in postmen staff. Thus, all postmen posts should be filled up.

 

However, the postal department is taking several steps to raise their earnings by providing services like selling application forms of educational institutions and recruitment agencies, railway ticket booking, facilities for Aadhar registration and upgradation, passport services, Gold Bond Schemes, etc. Shifting to e-commerce is also providing an added push, raising the revenue earned to 345 crore rupees in 2016 from 172 crore rupees in 2014-15. For the success of IPPB, rural infrastructure has to be strengthened.  The dependence on the postman which is one of the biggest advantages of the IPPB is also its biggest challenge, as along with the post, he will have an added responsibility. The government is saying that it is providing all training and equipment to the India Post employees and is said to beat all the odds to make this ambitious initiative a resounding success.

Post Independence, the department of Posts had a huge responsibility of connecting every corner of the country. In order to keep up with the pace of an advancing population, and its increasing needs, the government has over the years, taken several steps to enhance the postal network and skills of the department.

An account of the reforms:

  • For more than 150 years, the department of Posts has been the backbone of India’s communication network. After Independence, the need for providing communication had doubled across the country.  
  • In 1947, there were only 23,344 post offices across the country. Of this number 19, 184 post offices were in rural areas. 4,160 post offices were in urban areas.  But, with the rapid rise in population, the demand for post offices has also increased. In light of the increased pressure, the government has been taking several steps to improve the functioning of the postal department. As the reforms came, inland letters changed to Speed post. And Speed post has now become e-post.

Timeline:

  • In the year 1879, Post cards were introduced.
  • The Indian Postal Order came in 1930. For faster and more precise delivery, the Postal Index Number or PIN Code, was introduced in 1972. In 1977, the department of Posts, introduced the Value Payable Posts (VPP), parcels and insured parcels.
  • In 1985, a rapid demand and increased stress on communication led to the division of the India Post into:
  1. The department of Posts and
  2. The department of Telecommunications
  • In 1986, Speed Posts were introduced. By 1994, you could send money to your loved ones, living in other parts of the country through Money Orders.
  • Post Independence, the Indian Postal Network expanded over 7 times. However, postal reforms continue even today.

Project Arrow: Project Arrow was introduced in April 2008. The project aims to create an effective, friendly environment for staff and customers, providing secure IT services and improving mail delivery, remittances both electronic and manual and postal savings plans.

Then the Mail Network Optimization Project or MNOP was implemented with the objective of consolidation and optimization of the mail network of the department of Posts with a view to improve the quality of mail operations.

  • Services such as all kinds of letters, speed post, registry, parcels, and track and trace facility for money orders have been expanded and improved.
  • According to government data, more than 27,215 post offices and administrative offices have been linked to the wide area network or WAN.
  • New Services such as Express parcel, business parcel, cash on delivery, online money transfer services, instant money order, and e-greeting have also been added.
  • A mobile App has also been launched.
  • The latest reform is the launch of the Government’s ambitious India Post Payments Bank (IPPB) on the 1st of September, 2018. Today, one can easily spot a GPS enabled post office vehicle on the streets. The department of Posts has also started the initiative of postal deliveries through GIS mapping in select cities. With an objective to leverage the strength of the vast postal network, the department of Posts has also started retailing mutual funds and bonds.   

 

Mains Questions:

  1. Examine the role which the India Post Payments Bank (IPPB) can play in furthering the idea of financial inclusion. (250 Words, 12.5 marks)
  2. The India Post Payments Bank (IPPB) can play a critical role in furthering the idea of financial inclusion. Critically Analyse. (250 Words, 12.5 marks)
  3. For the success of India Post Payments Bank (IPPB), rural infrastructure has to be strengthened.  Examine. (250 Words, 12.5 marks)

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