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Monday, December 9, 2013

India Post bank may need Cabinet nod

The department of financial services (DFS) in the finance ministry has insisted that the department of posts (India Post), which had applied to RBI for a bank licence, must get the Cabinet's approval for its plan. Earlier, DFS had objected to India Post's proposal, arguing that the latter lacked the capacity, technology and expertise to run a bank.
An earlier India Post cabinet note on this was withdrawn in the context of the DFS's objection and observations made by other ministries. India Post had applied for the licence even before it circulated the cabinet note. The DFS is now putting its foot down, virtually saying the RBI could consider the proposal only after the cabinet vetted the plan. "India Post is not a government company to decide on such matters on its own. (What is being proposed) is also not a government bank like theBharatiya Mahila Bank," a senior finance ministry official told FE. He said that RBI too was likely to ask India Post whether cabinet approval is obtained for the plan.
There are around 1.55 lakh post offices across the country including 1.4 lakh post offices in rural areas, 15,000 in urban areas and another 30,000 points of presence. Since post offices have a such a large network reaching even the most remote corners of the country and already offer many financial services for urban and rural people, it was argued by India Post that a banking licence for it would help expedite the government's financial inclusion programme, and increase savings as well as investment.
However, the DFS had opposed the proposal citing India Post's the inexperience in lending, inefficiency in functioning and a lack of an interconnected system to ensure that people get to access their money anywhere and at anytime like the banks, the sources said. Of the total 1.55 lakh post offices, only a little over 20,000 are computerised, they added.
The department of posts had reduced its estimates for the amount needed to roll-out the proposed bank from an initial R1,900 crore to R623crore, the sources said, adding however that more money will be required later for its expansion.
India Post, which is looking at setting up a separate banking entity with a new team of professionals as against converting its post offices into bank branches bank — has gone for the wholly-owned Non-Operative Financial Holding Company model as required by the RBI. It is also working on a core banking solutions-like system for their proposed bank. Incidentally, the government had started a R4,909 crore-worth information technology-driven project to modernise the postal network. The government had allocated R532 crore in 2013-14 to make post offices a part of the core banking solution and help it offer real time banking services.


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