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India Post Payments Bank: Greater Financial Inclusion or Electoral Politics?

Professor of Financial Economics and Part-time Value Investor, Transfin.
Sep 10, 2018 11:09 AM 2 min read
Editorial

India Post Payments Bank (IPPB), launched by the Prime Minister early this month can be a game changer for last mile financial inclusion in our country.

 

Structured as a 'Payments Bank', a new type of financial institution envisaged by the RBI - allowed to collect small deposits but not advance loans. Instead, Payments Banks can issue services like ATM / Debit cards, payments and transfers, sell third-party manufactured products like mutual funds, pensions, insurance etc. In case of IPPB, this shall be done leveraging upon India Post's vast postal branch network. 

 

IPPB is supposed to provide banking services across 155,000 post office branches nation-wide by year end

As per Manoj Sinha, Minister of Telecommunications, IPPB has been launched in 650 branches which has resulted in 3,250 access points. The aim is to spread to all 155,000 post office branches nationwide by the end of this year. However, the terms "branch" and "access points" are being used interchangeably in the narrative, thereby making an understanding of its current operational footprint a wee bit hazy.

 

IPPB can be a game changer for last mile financial inclusion owing to its ability to leverage India Post's widespread postal network

IPPB's operational leverage will come from 300,000 on-ground postmen who would, again on paper, provide financial services to remote unbanked parts of the country using mobile phones, biometric devices, and QR codes. 

 

However, government's expansion plans may be a bit too aggressive. Going from 650 branches in Sept to 155,000 branches by Dec 31 appears far fetched from an execution perspective

Considering the original 650 branches were supposed to be rolled-out by April 2018 and ended up going live with a four month delay is a case in point.

 

[Listen in from 4:10 onwards to learn more on IPPB's plans]

 

3 lakh on-ground postmen have to be adequately trained in QR tech to efficiently deliver banking services. Internet and technology infrastructure remain key

The postmen need to understand how to process QR code transactions and operate the biometric devices. Customers would have to deal with poor internet connectivity and low device penetration, which may negatively affect access to mobile banking services, as promised. 

 

Lastly, the profitability of the 'Payments Bank' model is yet to be tested

Payments Bank is a new model where the concerned institution is not allowed to advance loans, thereby missing out on beefy interest income i.e. the staple of a traditional bank. Without loans, a Payments Bank, at the end of the day, become a volume play, needing to transact thousands of payments, transfers, third-party product sales to ensure they make a profit. The existence of a branch network is an operational boon to IPPB. However the Minister's claims that it will turn profitable in 2 years appears to be an overstatement. 

 

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