Post Bank of India: a missed opportunity for UPA-II

Armed with all necessary approvals from various stakeholders, including the Planning Commission and the Ministry of Finance, the DoP had submitted its application with the Public Investment Board to be put before the Cabinet Committee on Economic Affairs (CCEA) for its approval in January this year. But the matter is yet to be taken up.

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The Reserve Bank of India (RBI), on Wednesday, decided to keep in abeyance its decision to grant banking licence to the Department of Posts (DoP) for setting up the Post Bank of India (PBI), thanks to sheer indecisiveness on the part of the Congress-led United Progressive Alliance (UPA) government that has been sitting on the issue for the past three months.

Armed with all necessary approvals from various stakeholders, including the Planning Commission and the Ministry of Finance, the DoP had submitted its application with the Public Investment Board to be put before the Cabinet Committee on Economic Affairs (CCEA) for its approval in January this year. But the matter is yet to be taken up.

In the meantime, the RBI gave “in principle” approval for banking licences to IDFC and Bandhan Financial Services Private Limited, but it did not consider the PBI application as it did not had mandatory clearance from the government. “The HLAC (high level advisory committee set up by the RBI to look into the issue) had also recommended that in the case of Department of Posts which has applied for licence, it would be desirable for the RBI to consider the application separately in consultation with the Government of India,” the RBI statement said.

However, this has given some relief to those engaged in the project in the DoP and the government as their application was not turned down by the RBI. And now they reason that the Cabinet can still decide on the issue without losing any time. “The Election Commission of India gave the RBI permission to decide on the licence grant as it was a routine matter. Similarly, the Union Cabinet can also decide on the issue and let the DoP get approval from the RBI...The issue of the model code of conduct being in force is irrelevant here,” a senior government official said.

But what puzzles many in the government is the reluctance on the part of the Ministry of Finance to speed up the DoP application, particularly when it would supplement the UPA government’s commitment towards financial inclusion as the wide reach of the DoP would ensure that even those living in remotest areas of the country get banking facilities.

“The PBI would use over 1.3-lakh post offices as business correspondent for the last mile reach in rural areas. These post offices will foster government’s financial inclusion agenda by providing simple yet the complete suite of financial products, including deposits, loans, insurance, remittances, pension products and government subsidies,” a senior official said.

Interestingly, the PBI will run on a unique model where just 150 branches would be opened over the next five years and manned by 3,000 employees, and these would be linked to 800 head post offices across India, which will further be connected to 25,000 sub-post offices and these to 1.3-lakh branch post-offices in remote and rural areas, including places such as North-East and Naxal-hit areas.

In its application to the RBI, the DoP has stated that the PBI would need Rs.1,800 crore as total capital investment, of which the government’s contribution would be just Rs.700 crore while the rest would be arranged from domestic and foreign investors.

The PBI is expected to have a turnover of over Rs.21,000 crore in five years with a profit of Rs.300 crore.