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Post Offices to Operate as Payment Banks
Jun 07, 2016

The Union Government has cleared a proposal for setting up of the Indian Post Payment Bank, which will become operational from March next year. Initially, the target was to create the architecture in three years but now it has been decided to finish work by September next year.

Key Points

  • There are 1.54 lakh post offices in India and its network is the largest in the world. Even bigger than State Bank of India.

  • 60 international consortiums had shown keen interest to partner India Post for third partner delivery for insurance and banking.

  • India Post has the largest network of core banking solutions branches in India. There has been a steady rise from 250-odd in 2014 to 22,000 at present.

  • The postal bank eyes to penetrate rural India via the postal department's 1.39 rural postal branches.

  • In the first phase, 650 payment bank branches will be set up.

  • To reach the last denominator, the postal department will use the 1.7 lakh postmen and other ground postal staff.

  • There is an ambitious plan to provide this ground staff 1.3 lakh handheld devices to turn them into mobile rural banks.

  • The bank will bring a huge upgrade for the ubiquitous postman—Apart from the handheld banking machine there is a proposal to provide sturdy tablets and even smartphones to them.

  • In the first phase, the government has cleared Rs. 400 crore as equity and similar amount as grant.

  • To make the bank popular, the department plans to set up 5,000 ATMs all over the country—apart from third party insurance and other services by the bank.

  • India Post Payment Bank is likely to also facilitate payments of central and state governments as well as municipal dues and fees of universities and educational institutions.

  • IPPB will obtain banking licence from the Reserve Bank of India (RBI) by March 2017 and by September 2017, all 650 branches of the postal payments bank would become operational.

  • The Department of Posts had obtained the ‘in-principle approval’ of RBI  in September 2015 to set up IPPB.

All citizens, including 40 per cent of the country’s population that is outside the ambit of formal banking, will benefit from this project. The project will be rolled out in the entire country in a phased manner.

The proposal will further the cause of financial inclusion by providing basic banking, payments and remittance services and facilitate financial services such as insurance, mutual funds, pensions and access to credit in tie-up with third-party financial providers with special focus on rural areas and the un-banked and under-banked segments.

It will generate new employment opportunities for skilled banking professionals and create opportunities for propagating financial literacy across the country.

What are Payment Banks?

New stripped-down type of banks, which are expected to reach customers mainly through their mobile phones rather than traditional bank branches.

  • They can’t offer loans but can raise deposits of upto Rs. 1 lakh, and pay interest on these balances just like a savings bank account does.

  • They can enable transfers and remittances through a mobile phone.

  • They can offer services such as automatic payments of bills, and purchases in cashless, chequeless transactions through a phone.

  • They can issue debit cards and ATM cards usable on ATM networks of all banks.

  • They can transfer money directly to bank accounts at nearly no cost being a part of the gateway that connects banks.

  • They can provide forex cards to travellers, usable again as a debit or ATM card all over India.

  • They can offer forex services at charges lower than banks.

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