Even before the Union Cabinet approved the setting up of the India Post Payment Bank (IPPB), three of the 11 original payment bank licencees—Tech Mahindra, Cholamandalam Investment and the Dilip Shanghvi-IDFC Bank-Telenor combine—had pulled out. Setting up IPPB—an 800-pound gorilla in the payments bank arena—is a step in the right direction to provide banking solutions at the doorstep of millions of Indians who currently do not have access to these. IPPB’s big plus is that it starts off with an enviable infrastructure of 1.54 lakh post offices across the country. Of that 1.39 lakh—90%—are in rural areas, many of which are in areas where banking services have not percolated even now. IPPB, slated to start operations in 50 districts in March 2017, is expected to cover the entire country by 2018-19. That involves setting up 650 branches and installing 5,000-odd ATMs. Among the big gainers of the spread are e-commerce companies like Flipkart and Amazon that cater to the diverse needs of buyers in the hinterland.
Though India Post, with revenues of Rs 11,640 crore (2014-15), has an inherent advantage, thanks to its infrastructure, it faces problems. First, unlike commercial banks, it cannot offer credit. Having a payments bank licence also does not help in that regard. Second, while India Post started core banking facilities in 2013, only 22,137 (14%) of the post offices have been covered so far. In contrast, all branches of the State Bank of India offer core banking services. It is unlikely that many of the smaller post offices will be connected in the near future. As a result, the operations of India Post are not efficient enough for today’s consumers. An MIS started in one branch cannot be redeemed in another despite the spread of core banking. It will be a while before that becomes a reality. Now that the government has given the go-ahead for IPPB, it is time that India Post looks to leverage its potential via the payments bank, by providing financial inclusion apart from creating employment opportunities. But considering that payments banks need to survive on hundreds of low-value transactions from people at the bottom of the pyramid, it will be a while before these get into the black. That could well be critical for the long-term survival of IPPB.