Expert Speak India Matters
Published on May 26, 2016
Make use of India Posts to bridge rural-urban divide

The India Post network with over 155,000 branches (as many as 1.3 lakh in rural India) is twice as large as the outreach of all commercial banks in India put together. As of March 31, 2015, the Indian Postal Service had 154,939 post offices, of which 139,222 (89.8%) were in rural areas and 15,717 (10.1%) in urban areas. It had 25,560 departmental Post Offices and 129,379 Extra-Departmental Branch Post Offices. On average, a post office serves an area of 21.23 square kilometres and a population of 8,354. Despite these staggering numbers, the government does not seem to realise the full import of the kind of nationwide network it is sitting on. Flipkart's logistics arm EKart has decided to leverage its vast swathe (relatively) of connectivity to make a foray into the consumer to consumer (C2C) courier business. The new business is expected to restrict itself to Tier 1 cities only. Since nature abhors a vacuum, Flipkart promoters have realised that there is a need based gap which needs to be fulfilled in what is essentially an unorganised market place. Contrast this narrative to the collapsing Indian banks now. Losses registered by leading public sector banks for the March quarter alone are in excess of ₹14,000 crore. Top of the line bank Punjab National Bank has seen the bottom fall out with a ₹5,367 crore net loss in the March quarter.

India Post offers both the largest human gene pool (199,295 employees) and postal office network which is being digitised rapidly in India to function, not just as an integrated provider of solutions, but also as a best of breed small savings banking option. Figures available showed that as on March 31, 2007, nearly 16 crore people used India Post to save ₹3,23,781 crore. "Out of this, deposits in savings bank alone accounted for ₹16,789 crore. There is, therefore, a need for India Post to computerise and connect all its savings bank accounts so as to widen and deepen the level of financial transactions and offer banking services to the rural population. India Post sees a great opportunity for increasing the number of accounts and volume of savings,” a Report of Expert Committee on Harnessing the India Post Network for Financial Inclusion stated in June 2010. By March end 2015, the Post Office Savings Bank numbers have doubled — a customer base of more than 33.03 crore account holders with an outstanding balance under all National Savings Schemes and Saving Certificates of ₹6,19,317.44 crore. The savings bank though has shot through the roof with an outstanding balance of ₹46,847 crore for FY 2015 end.

A legacy network which reaches the last man standing in India is ready and available. The question is whether it is being utilised effectively and efficiently? Harnessing small savings, rural credit, financial inclusion, micro finance, courier network, distribution of third party financial products, remittances, utility payments, ATMs. Post Shoppe is already selling FMCG products as well and what have you under the aegis of India Post as a one stop shop with better penetration than any other organisation in India. The case in point is distribution of MGNREGA wages through India Post in FY 2015. 6.82 crore accounts had disbursed ₹7668 crore. Similarly, the Direct Benefit Transfer scheme has got brand new legs using this network cutting off slippages, leakages and corruption hopefully. The Post Office Savings Bank (POSB) already is the largest bank in the country by number of customers, and number of branches, handling a large volume of government benefits payments. It does not distinguish between rich and poor customers. Thus, given its size and reach, India Post can lead the way for financial inclusion.

Six years ago, the Expert Committee on Harnessing the India Post Network had made far reaching recommendations:

1. India Post should deliver lightweight, low­ cost bank accounts to all Indian citizens and especially to the financially excluded population.

2. India Post should look for ways to leverage its low cost platform by providing India Post branded accounts to other strategic partners, such as MFIs, mutual fund and insurance companies, and telecom operators.

3. India Post should apply itself towards the challenge of achieving high volumes of money­ orders where payments of as little as ₹10 are achieved at a charge of less than ₹0.1 while requiring no subsidy from the exchequer.

4. India Post should evolve the money­ order to become a mechanism for transferring money from one POSB account to another, instead of just being a mechanism for delivering cash from one person to another.

5. India Post must build a payments infrastructure, through an array of contracts with partners, connecting up all POSB accounts and accounts of its partners, to effectively become a person ­to­ person money­ order capability (through mobile phones or web browsers) for a large swathe of India.

6. India Post must elicit a large number of partners in terms of financial inclusion players, mobile service providers and innovative new technological choices in order to increase the size of the network.

7. India Post must work closely with a diverse array of government agencies so that their G2P payments requirements are met through a combination of POSB accounts held by citizens and money­ orders delivered by government to those POSB accounts. The Ministry of Finance should work with India Post in rapidly rolling out this platform and network, given its important implications for direct, targeted delivery of government subsidies.

8. India Post should play a role in the emergency credit aspect of financial inclusion, through a platform­ building approach where private lenders deliver credit to the poor through a competitive framework.

9. India Post should request the addition of its financial inclusion project into the Terms of Reference of the recently announced Technology Advisory Group for Unique Projects, and the leadership team of the India Post financial inclusion project should closely engage in the work of this Group, so as to bring in the best practices for project management.

10. The role of the Post Office Savings Bank as an agent of the Ministry of Finance should be revisited and expanded to enable India Post to play a larger, direct role in financial inclusion and build appropriate enabling architecture.

Here is an example. India Post also already offers a money ­order facility. While this product is expensive in its present form, an electronic money­ order can become low­ cost and competitive. Worldwide, post offices offer the Postal Giro as a means of sending payments electronically, and a mechanism for paying utility bills. Once a payments system is set up, India Post can deploy this infrastructure in elegant ways to become a market leader in micro­ loans to the poor for emergencies. Fortunately, the BJP government has realised that it is time to unlock the true potential of this sleeping Gargantua. Sparking off a modernisation drive to bring it up to speed with contemporary requirements, it is believed that several front line global financial behemoths want to partner with India Post.

It was reported that a large number of players offering financial services like banking, mutual funds, money transfer, insurance etc, have showed keen inclination towards tying up with the India Post and leverage its vast spread out network of branches. Though it finally received the nod for a payments bank from the Reserve Bank in September last year, this is expected to start only by March 2017. If alacrity is shown with both the modernisation drive and the payments bank roll out, the govt will have the perfect instrumentality to give vision to its dreams of financial inclusion. And if someone smart in government can begin mapping the convergence of Indian Railways with India Post, then this dovetailing has the potentiality to change India and bridge the rural-urban divide faster than anything else.

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Ritika Prasad

Ritika Prasad

Ritika Prasad Student Tata Institute of Social Sciences (TISS)

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