At a nondescript post office in the national capital, a bespectacled employee in her late 40s flips through the pages of passbooks at her counter. Surrounded by mounds of papers and old files, she goes about her work dispassionately. On the other side of the counter, people have queued up—some to get their passbooks updated, others to receive cheques on the maturity of their investment. They jostle through the tiny opening in the glass window to get her attention.
Meanwhile, the employee stares at the computer screen in front of her, which reads: “Error 404. The link is not available”. She turns to the printer, which looks almost a century old, takes a passbook out and hands it over the counter to a customer. Unhappy with the service, he mutters, “I have been coming here for the past three days to get my passbook updated. Everyday you say the server is down.” The employee barely glances at him and places a placard on the counter, which says: “Closed for lunch. Come after 30 mins.” Almost in tandem, the clock strikes 2 pm and the counter gets shut. The miffed customers grunt, curse the ‘system’ under their breaths and walk away.
Reads familiar? This could be just another day in any Indian post office.
Once regarded as an eminent institution because of the services it provided, the post office has today become almost obsolete, overshadowed by more dynamic communication channels such as the telephone, email, mobile, messaging apps and social media.
There is one area, however, in which the post office continues to be in the reckoning in India: the small savings scheme. Around nine such schemes—Post Office Savings Account, 5-Year Post Office Recurring Deposit Account, Post Office Time Deposit Account, Post Office Monthly Income Scheme Account, Senior Citizen Savings Scheme, 15-year Public Provident Fund Account, National Savings Certificates, Kisan Vikas Patra and Sukanya Samriddhi Accounts—of the post office continue to gain traction even today. The high interest rate offered is one of the major reasons behind this, as are factors of security and stability.
Take, for instance, the case of 65-year-old, New Delhi-based RL Pandey who retired in 2012. The first thing he did after retiring was to open a Senior Citizens Savings Scheme (SCSS) at the post office. “I wanted to put my provident fund money in a safe place. What better place than a post office? The interest rates are the highest compared to banks and my money is secure too. For people like us, the post office is the best option,” he says.
The Senior Citizens Savings Scheme of the post office, which gives an 8.3% interest rate (the highest compared to any of its peers), is one of the most lucrative schemes to park one’s provident fund money in after withdrawal. It’s no surprise then that it’s a big hit with the retired. Owing to the massive consumer base, in fact, such schemes are one of the major sources of revenue for the post office. This is especially significant at a time when the post office’s other means of revenue generation such as money orders, postal stamps, etc, have dwindled to the extent of becoming extinct. There’s another area where the post office reigns supreme: the hinterlands. In the absence of banks in many rural areas, people still deposit their earnings in the post office.
Scheme of things
Nafisa, a New Delhi-based student who goes by one name only, waits patiently for her turn to open a savings account at the Kotla Marg post office in the city. The 21-year-old is accompanied by her mother. There is the difference of a generation between them, but the post office is the common savings option for both. While her mother opened an account after her husband retired seven years back, Nafisa wants to start saving early. “I prefer the post office over a bank for saving my money even though it’s easier to open a bank account… the stability here is more. Also, the interest rates are higher compared to others,” says Nafisa.
At a time when public-sector banks (PSBs) are reeling under the immense weight of non-performing assets (NPAs) and private lenders are caught in a storm of unlawful activities, the post office sure seems the most credible and reliable investment option for commoners.
The interest rates provided by the post office for various savings schemes range from 4% to 8.3%. Arguably, they are the highest in their respective categories. But one wonders how is the post office able to offer such rates compared to its peers? The answer lies in the fact that interest rates in the post office are revised every quarter based on the yields earned by the government on its 10-year government security (G-sec) bonds.
So the question arises that if interest rates of government organisations depend on yields from 10-year G-sec bonds, why do PSBs offer a lower interest rate compared to post offices? The answer to this question lies in two parts.
First, in post offices, the interest rate is calculated by adding a certain spread—a fixed interest rate depending on the scheme—to the weighted average bond yield from the previous quarter. Sample this: the bond yield during July-September 2017 was 6.8%. Now, for a five-year term deposit, the spread is 0.25%. So the total interest rate during the period for the given scheme should be 7.05%. However, the actual interest rate was 7.6%.
Since the savings schemes of the post office are small in nature—with an investment cap on schemes like Monthly Income Scheme (MIS) and Public Provident Fund (PPF)—the higher interest rate is to provide incentives to small-scale investors. This encourages such people to invest more. On the contrary, PSBs get large deposits from both individuals and corporates and that, too, without any cap. Therefore, they offer lower interest rates.
According to Brijesh Damodaran, founder and managing partner, BellWether Advisors, a Gurugram-based wealth management firm, “The interest rates are decided by the government and are looked upon as a source of secular, assured income for people across the nation.” Being directly linked to government bonds, there is minimum fluctuation in post office interest rates. This helps the institution edge ahead of its peers, especially when bank interest rates fall.
Explaining the significance of post office schemes, Anil Rego, CEO and founder, Right Horizons, a Bengaluru-based wealth advisory firm, states, “Such schemes have a social cause attached to them. Some of them, such as the SCSS, are subsidised by the government, which makes them lucrative for pensioners who want stable returns. They affect the lives of the common people directly.”
While schemes such as the PPF are extremely popular in urban centres, a lot of the other schemes attract massive consumers in smaller or the interior regions of the country. “Tier II and III cities contribute the maximum to post office savings schemes. The deep penetration of the post office makes it possible for it to reach a wider consumer base, so it has to keep the rates attractive for people to come and invest,” Amar Pandit, CEO and founder, My Financial Advisor, a Bengaluru-based wealth management firm, tells Financial Express.
According to financial experts, all the nine schemes have a significant role to play. The PPF—a savings scheme where people can invest a maximum of Rs 1.5 lakh a year, compounded annually at an interest rate of 7.6%—gives a tax benefit under 80C of the Income Tax Act and the returns are tax-free. Then there is the Kisan Vikas Patra (KVP), in which large sums of money can be invested—one can purchase a certificate for a minimum of Rs 1,000. The amount invested doubles in nine years and 10 months—interest is compounded annually at 7.3%. In term deposit (TD), an amount can be invested for five years (Rs 200 being the minimum). The interest—the rate ranges from 6.6% for one year to 7.4% for five years—is calculated quarterly, but paid annually.
Meanwhile, for regular income, the MIS can be opted for. At an interest rate of 7.3%, an individual can invest a maximum of Rs 4.5 lakh or Rs 9 lakh for a joint account.
For the girl child, there is the Sukanya Samrudhhi Scheme. A legal guardian of a girl child can open this account for a minimum of Rs 1,000 and invest up to Rs 1.50 lakh in a financial year. The interest rate of 8.1% is compounded annually. It’s regarded as an excellent initiative of the government, especially for people in rural areas.
Evolution is key
Even with all its success, however, there are questions looming ahead for the institution. Chief among them: with the rise of digital wallets and the expansion of the banking system into the interiors of the country, will the post office still be able to hold its relevance in times to come? Will high-return schemes alone propel the post office into a relevant public entity? Most importantly, is it time for it to revamp and modify its model and operations?
The post office, like a majority of government organisations, has always been criticised for its callous working infrastructure. Most of the employees are at the fag end of their professional careers and have either little or no regard for the work they do. The lack of involvement of the youth in key positions is also a significant problem. While some term the employees incompetent, others believe it’s the nature of their work that’s made them so complacent. In either case, the consumer suffers.
Addressing these problems, a senior India Post official, who didn’t want to be named, says, “Most of the staff is old. They do their jobs because they have been assigned to do so. There’s not much enthusiasm. The youth also don’t see the post office as a lucrative job option. But we are making amends to get a younger workforce.”
Technology is another aspect where the post office fails miserably. At a time when consumers can open a bank account with a tap on their mobile screens, the post office makes them run from pillar to post, from one counter to another, to do so. Most of the times, the central servers are down, greatly delaying the procedure.
The official acknowledges the technological backwardness of the post office, but believes that the thrust of the current government on digitisation will help India Post in the long run. “We have an application, which consumers can use. The technology is being upgraded slowly. It would need some time, but the progress is happening. The major problem lies in the absence of dissemination of information to the consumers. Since a large portion of them come from lower-income groups, they are unaware of the developments taking place. We intend to change that in the future,” he adds.
Keeping the infrastructure bottlenecks aside, the post office also needs to revamp its working model to adapt to the changing needs of the consumers. Take the case of the US. The US Post joined hands in 2013 with UPS, a courier and logistic company, for the delivery of packages and other items. Amazon US, too, uses the services of US Post. To a certain extent, India Post has toed a similar line. In 2017, it tied up with Barclays Bank. This has enabled Barclays to offer cash management services to its clients. Also, Amazon and Flipkart tied up with India Post in 2014 and 2015, respectively, for cash-on-delivery facility and last-mile connectivity outside of large cities.
Clearly, evolution holds the key for the post office. So what does it need to do more to stay relevant? To start with, it needs to see its huge logistic network as a resource and not a liability. “The logistic network of India Post is enviable. The tie-ups with corporates in delivery—especially the last-mile connectivity—can be the forte to be leveraged,” Damodaran of BellWether Advisors states.
The challenges that the post office faces today are both external and internal. While the availability of better investment opportunities such as mutual funds and stock markets are the external forces it needs to counter, motivating the current team and providing the younger generation an incentive to join the institution are the internal challenges it needs to tackle. “There are a host of alternatives out there for consumers. Interest rates can’t just be the reason that would keep India Post relevant. It can be a static part of a major overhauling, but they need to find alternatives. They can use digitisation as a tool to amalgamate their services on a single platform. This would make it easier for consumers to have a know-how of the functioning of post offices,” says Rego of Right Horizons.
The India Post Payments Bank (IPPB)—which received the permit from the Reserve Bank of India (RBI) on January 20, 2017, to roll out its services—is touted to be one of the biggest game-changers for the post office and its viability in times to come. At a time when transactions are moving towards a digital interface, it would be interesting to see how the IPPB thwarts competition, such as Paytm Payments Bank and Airtel Payments Bank, and create a consumer base for itself.
To start with, the public-sector company (with 100% government equity) plans to roll out 650 branches in the next couple of months. This is after two branches, as part of the pilot project, were launched in Raipur and Ranchi in January last year. “The 650 branches will serve as controlling offices to service and monitor the approximately 1.55 lakh post offices that will act as last-mile access points for the public,” communication minister Manoj Sinha had said in a written reply to the Lok Sabha in March this year.
The IPPB has set a target of acquiring 80 million customers in the next five years. The target, though ambitious, is daunting as well. “We know the target is a bit ambitious. But with the reach that India Post already has, we don’t think it would be that difficult to achieve. Also, India Post’s expansive reach in rural areas will also be an incentive for the IPPB,” said a source associated with the IPPB on the condition of anonymity. The IPPB will offer three different accounts—Safal, the regular account; Sugam, a basic savings bank deposit account (BSBDA); and Saral, BSBDA-Small, for people with limited or no banking experience.
When it comes to competition, one of the distinguishing features between the three major payments banks in the country is the interest rates they offer. While Airtel Payments Bank gives the highest interest rate of 7.25%, Paytm offers an interest rate of 4% on savings accounts and 7% on fixed deposits. The IPPB, on the other hand, has interest rates between 4.5% and 5.5% for savings accounts. Furthermore, a customer can deposit upto Rs 1 lakh and isn’t mandated to keep a minimum balance. “The interest rates depend on the amount invested during a particular quarter. If the quarterly average balance is up to Rs 25,000, the interest rate is fixed at 4.5%. If it lies between Rs 25,000 and Rs 50,000, a customer gets an interest rate of 5%. And if it’s above Rs 50,000, the bank gives an interest of 5.5%. This allows more freedom to the customer to make investments,” added the IPPB source.
Even as the IPPB awaits approval from the RBI for the software used for integration of various services, the question that lies ahead is: how well will the financial inclusion be implemented? This is especially significant given the fact that the IPPB already missed its September 2017 deadline, as it failed to get a system integrator (SI), a company or person that brings together component subsystems into a whole, onboard in time. After the failure, Hewlett-Packard (HP) was given the contract to be the SI for the IPPB.
Apart from the technological infrastructure and vision, the single biggest factor that could make or break the IPPB would be its ability to leverage the existing resources of postmen, Gramin Dak Sevaks and postal assistants. They are the ones who can take the IPPB to the doorsteps of consumers, especially in rural areas. Not unsurprising then that, in a bid to achieve maximum penetration, the IPPB has roped in postmen with India Post to cater to customers. “The postman would have a smartphone with him, which can be used to facilitate transactions. Customers can also receive their subsidies through the postman using the BHIM app. The role of the postman will assume importance because he will help in direct benefit transfer schemes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA),” explains the official from India Post. The reach of the postmen, as well as their knowledge of rural areas, will go a long way in setting up a strong foundation for the IPPB. Initially, 40,000 postmen will be available, but the number can increase to over a lakh in times to come.
A new postal revolution seems to be in the offing.