The extensive network of post offices makes integrating banking services with them a good idea, but they lack critical infrastructure and man-power skills
The concept of converting Indian post offices to bank branches of the ‘P&T Bank of India’ sounds interesting given our objective of having more new banks with a thrust towards financial inclusion. As post offices are located in more places than any other public facility, it seems tempting to espouse this conversion. However, before accepting this idea, it would be fair to really weigh the implications of such a move. The argument for having them serve as bank branches goes this way. There are around 1.55 lakh post offices, of which around 90% are in rural areas. Compared with the 90,000 odd branches of scheduled commercial banks, this is more impressive given that rural branches account for around a third of them, which, including semi urban branches, would come to around 60%. Post offices already deal with customers in terms of garnering deposits and certificates of various kinds. They have around 260 million plus accounts compared with the 810 million odd accounts held in the commercial banking system. There are separate accounts for MGNREGA accounts as well as savings bank accounts, which makes it quite widespread. Also, this access makes it easy to combine financial transactions of government programmes, especially so since there is a lot of talk on having direct cash transfers. Their accounts are valued at round R6.2 lakh crore as of March 2011, which is impressive given that banks had deposits of around R52 lakh crore. Add to this the post office insurance policies that are handled by this department of around 17 million with a cover of around R1.3 lakh crore, and prima facie it appears that we have a reflection of a ‘universal financial institution’ in place. But this is where the bright picture fades. The P&T department had a loss of over R6,000 crore in FY11 with all products selling at a loss. Clearly, the department is not geared to working on commercial lines and works based on the directives of the government of India. This leads one to the beginning of the train of thought, which argues that converting post offices into bank branches may not be a very good idea and may not probably work.First, while there is a good network of post offices, their size and facilities would not warrant such a conversion given that they are ill-equipped to handle any sophisticated transactions. The analogy can be carried to petrol stations that are located everywhere in the country but cannot really be converted into bank branches. Even the idea of having ATMs in these petrol stations has been abandoned over a period of time since there were not enough footfalls and the project became non-viable.Second, post offices have literally worked liked mechanical organisations where the staff sat back and waited for customers to come in. The customer has never mattered for the staff and the mindset has been one of being inefficient and always seeking favours—the baksheesh culture still runs in these offices right from cashing in certificates to delivery of letters at the doorstep. Third, the quality of staff is not of the order that could be remotely associated with banking. Of the 4.7 lakh staff in this department as of March 2011, there were around 600 Grade-A gazetted officers and another 7,000 odd Grade-B staff. The Grade-C clerical staff amounted to 2.01 lakh and another 2.58 lakh came in as postmen—called ‘Dak sewaks’. This means that not more than 2% of the staff would actually fall under the category of being qualified. And banking is not a field that anyone can take up as it needs one to understand the products and the regulations. Fourth, the post offices have collected deposits and certificates of money which have then been passed on to the state and central governments as part of the public account transfers. Can we really think of this post office staff actually getting into the act of lending money to those who require it after doing a due diligence? The answer is very clearly a big no. The question then is what will these post offices do with the money they collect? One option is to invest only in Gsecs, which is what narrow banking was all about. Given that it is a loss-making department, this does sound a viable option. If so, will we be happy with such an arrangement considering that when we speak of inclusive banking, we are also looking towards channelling lendable resources to the more vulnerable sections of society? Fifth, the infrastructure needs tremendous improvement. Even within public sector banks, it has taken over 20 years for most of them to achieve a high degree of core banking penetration. Given the limited expertise with staff and absence of facilities like electricity in remote villages where these post offices are located, post office banking may not work out. Therefore, it does appear that there are more compelling reasons to believe that post office banking is still some distance away. The concept of converting post offices to bank branches is certainly thought-provoking as there are lots of them in the country and their own area of business could be diminishing as private couriers, mobile phones and internet facilities have caught on. Intuitively, it looks like the space can be used for reaching out where the present financial system does not. Using a third-party route would probably make sense to begin with, where a bank can have its own official operate from this centre, which can provide the P&T department revenue while the bank can go a step closer towards meeting its inclusive banking targets. In fact, on deeper thought, the new banks that will get a licence should consider this option as they would have to meet this commitment right from the start. Therefore, just like how banks sell third-party financial instruments in the branches, the post office space could be leased out for this purpose. However, for this, a reality check has to be conducted to ascertain if these distant offices really offer the space and basic amenities for such a set up. Otherwise, it may be a non-starter.
The concept of converting Indian post offices to bank branches of the ‘P&T Bank of India’ sounds interesting given our objective of having more new banks with a thrust towards financial inclusion. As post offices are located in more places than any other public facility, it seems tempting to espouse this conversion. However, before accepting this idea, it would be fair to really weigh the implications of such a move. The argument for having them serve as bank branches goes this way. There are around 1.55 lakh post offices, of which around 90% are in rural areas. Compared with the 90,000 odd branches of scheduled commercial banks, this is more impressive given that rural branches account for around a third of them, which, including semi urban branches, would come to around 60%. Post offices already deal with customers in terms of garnering deposits and certificates of various kinds. They have around 260 million plus accounts compared with the 810 million odd accounts held in the commercial banking system. There are separate accounts for MGNREGA accounts as well as savings bank accounts, which makes it quite widespread. Also, this access makes it easy to combine financial transactions of government programmes, especially so since there is a lot of talk on having direct cash transfers. Their accounts are valued at round R6.2 lakh crore as of March 2011, which is impressive given that banks had deposits of around R52 lakh crore. Add to this the post office insurance policies that are handled by this department of around 17 million with a cover of around R1.3 lakh crore, and prima facie it appears that we have a reflection of a ‘universal financial institution’ in place. But this is where the bright picture fades. The P&T department had a loss of over R6,000 crore in FY11 with all products selling at a loss. Clearly, the department is not geared to working on commercial lines and works based on the directives of the government of India. This leads one to the beginning of the train of thought, which argues that converting post offices into bank branches may not be a very good idea and may not probably work.First, while there is a good network of post offices, their size and facilities would not warrant such a conversion given that they are ill-equipped to handle any sophisticated transactions. The analogy can be carried to petrol stations that are located everywhere in the country but cannot really be converted into bank branches. Even the idea of having ATMs in these petrol stations has been abandoned over a period of time since there were not enough footfalls and the project became non-viable.Second, post offices have literally worked liked mechanical organisations where the staff sat back and waited for customers to come in. The customer has never mattered for the staff and the mindset has been one of being inefficient and always seeking favours—the baksheesh culture still runs in these offices right from cashing in certificates to delivery of letters at the doorstep. Third, the quality of staff is not of the order that could be remotely associated with banking. Of the 4.7 lakh staff in this department as of March 2011, there were around 600 Grade-A gazetted officers and another 7,000 odd Grade-B staff. The Grade-C clerical staff amounted to 2.01 lakh and another 2.58 lakh came in as postmen—called ‘Dak sewaks’. This means that not more than 2% of the staff would actually fall under the category of being qualified. And banking is not a field that anyone can take up as it needs one to understand the products and the regulations. Fourth, the post offices have collected deposits and certificates of money which have then been passed on to the state and central governments as part of the public account transfers. Can we really think of this post office staff actually getting into the act of lending money to those who require it after doing a due diligence? The answer is very clearly a big no. The question then is what will these post offices do with the money they collect? One option is to invest only in Gsecs, which is what narrow banking was all about. Given that it is a loss-making department, this does sound a viable option. If so, will we be happy with such an arrangement considering that when we speak of inclusive banking, we are also looking towards channelling lendable resources to the more vulnerable sections of society? Fifth, the infrastructure needs tremendous improvement. Even within public sector banks, it has taken over 20 years for most of them to achieve a high degree of core banking penetration. Given the limited expertise with staff and absence of facilities like electricity in remote villages where these post offices are located, post office banking may not work out. Therefore, it does appear that there are more compelling reasons to believe that post office banking is still some distance away. The concept of converting post offices to bank branches is certainly thought-provoking as there are lots of them in the country and their own area of business could be diminishing as private couriers, mobile phones and internet facilities have caught on. Intuitively, it looks like the space can be used for reaching out where the present financial system does not. Using a third-party route would probably make sense to begin with, where a bank can have its own official operate from this centre, which can provide the P&T department revenue while the bank can go a step closer towards meeting its inclusive banking targets. In fact, on deeper thought, the new banks that will get a licence should consider this option as they would have to meet this commitment right from the start. Therefore, just like how banks sell third-party financial instruments in the branches, the post office space could be leased out for this purpose. However, for this, a reality check has to be conducted to ascertain if these distant offices really offer the space and basic amenities for such a set up. Otherwise, it may be a non-starter.
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