India’s Postal Service Seeks to Serve as Banker to the Masses

Friday, January 8, 2016

The world’s largest post office network is planning to ramp up its financial services across India, triggering a race among commercial banks to set up partnerships to reach remote areas that have been unprofitable.

India Post will start operations as a payments bank around December after receiving central bank approval last year, said M.S. Ramanujan, head of banking services at the country’s third- largest employer. About 90 percent of post offices are scattered across the country’s 600,000 villages, giving it a reach that no commercial bank can match.

“India Post certainly will be a game changer in financial inclusion,” Abizer Diwanji, Mumbai-based leader for financial services at EY India, said by phone. “They are in the best position to multiply existing banking services.”

Bringing the roughly 200 million Indians who lack a bank account into the financial system can help Prime Minister Narendra Modi lure much-needed savings and plug costly leakages in the government’s cash transfer programs. Central bank Governor Raghuram Rajan is betting that competition from India Post and others will push commercial banks to become more efficient and lower the cost of services.

Around the world, three of every four postal operators offer financial services to about 1 billion people, according to a November 2014 presentation from the Universal Postal Union. While India is decades behind nations such as Japan and Australia in allowing its post offices to perform banking services, the government has long used them for its small savings programs.

Only 38 percent of bank branches are in rural areas due to the high cost of operations. As a payments bank, India Post would be able to offer almost any financial services except for extending loans.

Source: Chicago Tribune (link opens in a new window)

financial inclusion