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India Post may team up with a bank to start lending

Core banking solutions at post offices to aid financial inclusion

The plan will not only fast-track the process of financial inclusion, but also will make it possible at lower cost to the exchequer. It will be a win-win situation for all stakeholders as it could help India Post have a self-sustainable model over a few years.
The plan will not only fast-track the process of financial inclusion, but also will make it possible at lower cost to the exchequer. It will be a win-win situation for all stakeholders as it could help India Post have a self-sustainable model over a few years.

Government-run India Post may tie up with a commercial bank to offer various loan products to people and businesses, with a focus on the rural economy. The planned roll-out of 100% core banking solutions (CBS) at all the 1.5 lakh post offices in the country would facilitate the loss-making entity’s transition to the new role as provider of multiple fnancial services, an official source said.

The plan will not only fast-track the process of financial inclusion, but also will make it possible at lower cost to the exchequer. It will be a win-win situation for all stakeholders as it could help India Post have a self-sustainable model over a few years.

In the Budget for FY23, finance minister Nirmala Sitharaman announced that CBS will be implemented in all post offices to provide online transfer of funds between post office accounts and bank accounts.

Apart from providing postal services, India Post runs popular savings schemes. However, it has over the years turned out to be an enormous fiscal burden. The perennial gap in the state-run entity’s revenues and expenditures has widened in recent years and touched a staggering Rs 18,800 crore in FY21.

“There are more post offices than bank branches (1.2 lakh) in the country. So, the objective is to turn around loss-making infrastructure to a universal bank over a period of time,” the official said. With most of the rural bank branches also making losses (20% of PSB branches are in rural areas), there is no point in investing in public sector banks to expand branches in rural areas, he added.

The post offices can act as an extension counter of a commercial bank and extend loans appraised by the bank as India Post doesn’t have underwriting capability, the official said.

Currently, India Post has a subsidiary — India Post Payments Bank (IPPB). Payment banks can accept deposits up to Rs 2 lakh but they can’t lend.

Like other loss-making public sector enterprises, India Post’s finances are weighed down by high pay-and-allowance costs for its 4.16 lakh staff. While losses will be there for a universal service like postal, efforts to improve India Post’s performance and boost its revenue flows haven’t fructified due to a huge mismatch between product costs and pricing as well as the availability of cheaper and faster substitution to traditional mail services.

On the revenue front, India Post is largely dependent on National Savings Schemes and Saving Certificates, which contributed over 70% of its Rs 11,385-crore revenues in FY21. Postal services generated only 23% of revenues.

Earlier, the finance ministry had told the postal department that it has to be self-sufficient by levying adequate user charges as the Centre’s Budget could not absorb such recurring annual losses.

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