(The
original article was published in the Business Standard on 11/05/2015)
The postal department has
decided to rope in professionals from the private sector for top positions at
Post Bank of India (PBI), its proposed fully-owned payments bank.
As PBI is to use the department's infrastructure - real estate, office premises, computers, information technology system and a large part of its staff - to run the payments bank, the department expects to earn a revenue of Rs 2,365 crore over the first five years of operations, through transfer pricing. This will help the government reduce the subsidy it annually gives the department for running its operations.
The postal department's
deficit for 2015-16 has been pegged at around Rs 6,665.09 crore, according to
Budget documents. This had stood at Rs 6,377.89 crore the previous year, and Rs
5,339.28 crore in 2013-14.
According to sources, the
Reserve Bank of India (RBI) could approve issue of licence for this payments
bank by August this year, after which the process for setting it up might
start.
Within three months of
getting the licence, the department will hire key resources like chief
executive officer, chief financial officer, chief operating officer, chief
people officer and chief risk officer, according to a presentation recently
made before Communications Minister Ravi Shankar Prasad.
This core team will take
up the increased responsibility during the first 12-18 months after approval of
licence, and assume full charge around the date of the launch. PBI is expected
to become viable within three years of operations and is projected to generate
annual profits of about Rs 91 crore by the end of five years.
The department will soon
move a Cabinet note for approval of Rs 650 crore as investment in the proposed
payments bank.
For PBI, the plan is to
have a hub-and-spoke model. There will be 650 main branches where the
department will have head or bigger post offices. Subsequently, 25,000 'spoke'
branches will be set up, while some 130,000 post offices with act as business
correspondents for the payments bank.
The idea will be to target
rural customers with products like small savings accounts, payments/remittances
services and assistance in getting loans and insurance products from
third-party institutions. For urban customers, the products will include
pre-paid wallets for easy remittances and micro insurance products. Also, there
will be an attempt to tap micro and small businesses with their products. The
focus will be on high-volume, low-value transactions and providing small
savings accounts and payment services to migrant labour, low-income households
and the unorganised sector, according to the presentation.
The department had earlier
proposed a fully-owned and new entity as an umbrella firm for its four or five
strategic business units, to look after banking & financial services and
insurance, and for offering third-party products, besides e-commerce and
management of government services.
And, a few of these units
will be hived off into separate entities; a feasibility study for setting up
new units will start sometime this year.
The postal department has
a 150,000-strong network of post offices across the country which directly
employ 500,000 people. The department is largely moving in line with the report
of a panel headed by former Cabinet Secretary T S R Subramanian in this regard.
In the Budget speech this
year, Finance Minister Arun Jaitley had said the government was committed to
increasing people's access to the formal financial system. "The government
proposes to utilise the vast postal network, with nearly 154,000 points of
presence across villages of the country. I hope the postal department will make
its proposed payments bank venture successful, so that it contributes further
to the Pradhan Mantri Jan Dhan Yojana."
While remittance is a big
segment, 55-60 per cent of this happens through the unorganised sector. The
department is looking to strengthen its foothold in this space. Half of India's
remittance market, estimated to be worth Rs 2 lakh crore, is in the informal
sector, and does not reflect in official numbers (on remittances through India
Post, mobile wallets, etc) for want of clarity on definition of migrants.
Apart from India Post,
other applicants for a payments bank licence include Bharti Airtel, Vodafone
India, Idea Cellular, Uninor and Reliance Industries. Unlike full-fledged banks
that make money on float through arbitrage - they lend money at higher interest
rates than what they pay depositors, and do not charge on transaction services
- this proposed payments bank will charge for services, primarily cash-outs and
cash-ins. The proposed entity could deposit the amount in government securities
and earn annual interest at 8-8.5 per cent, and it might give customers three to
four per cent on the amount. However, unlike scheduled banks, they will not be
allowed to use the cash for giving loans.
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