It’s a welcome decision of the Reserve Bank of India (RBI) to involve India Post Payments Bank a scheduled bank.
The deepening of financial institutions to ensure that the financial attempts are not just sustainable but also ensure easy access to the account holder for not just Direct Benefit Transfer (DBT) in terms of G2P payments but knowledge and access for deposits, savings, recurring deposits, insurance and education on how less cash payment enables to build up their credit worthiness and then the credit. This arrangement requires a combination of financial institutions.
My advocacy is always for brick and mortar as that develops confidence instead of business correspondent model who is mobile. The deposits, savings, insurance are all long term engagements and thus brand of financial institution (name of bank, post office, cooperative bank) plays important role for the same. Having an account , even if in days of IT some may argue irrelevance of bank, but when we are talking of penetration and earning the faith factor it is important to graduate from physical presence and access. The hierarchy has to be post-office, small banks, cooperative banks, RRBs spread within 5 km radius, regular banks at higher levels. The penetration banks in sync with Mfin will ensure small easy credits. This is way forward for the financial inclusion and moving towards less cash society. The RBI decision to add Post Payment Bank in schedule is welcome.
Madhya Pradesh, when it worked for smooth platform for model for Financial Inclusion in the year 2012 by mapping a financial institute in 5 km radius , post office along with cooperative banks were vital to ensure penetration as the bank along with RRBs constituted only one fifth of the geographical spread. Both were not in CBS platform. The work with cooperative banks started by state government taking the initiative and with the help of lead bank, Central Bank of India, started the process. For the post office, a local software was developed where the transfer took 20 days to get credited to begin with. With these limitations a system of Direct Benefit Transfer was developed by making PFMS (linking directly to treasury), IT of all the banks and the scheme data base to talk to each other and a perfect bridge was made that became game changer with MGNREGA being first and then all the G2P benefits whether farmers payment, pension, scholarships started going through this bridge.
The Jan Dhan Yojana to begin with included only banks and thus access became the issue. The Banking Correspondence was not a business model and hence was present more by absence than a practice. Copies notes to involve post office was sent to committee chaired by TSR Subramanyam resulting in Post Office along with others got payment bank license. It is not in knowledge of many that Post Office were among few who got banking license pre-independence. Thus, post office besides penetration handled money orders and had all financial products like savings account , deposits, recurring deposits, small savings, etc. What it lacked was giving credits. Payment bank status paved way to get license post-independence for payments and now adding in second schedule is way forward.
Micro-finance institutions give small credit at the lowest rung. The combination of Post Office and Mfin institutions is good recipe to ensure penetration as there is a post office for every three villages and ensure access to the account holder for real financial inclusion. This will enable effective cash management and also the MFI industry by making collections cashless with rural accounts in the Post Offices. Impactful services can be sold in synergy and optimise Mudra loan limit of one lac announced recently in the budget. The gaining access as credit, deposit, saving, insurance against just having access in terms of just having an account opened will be real transformation. Post officers are totally computerized down to the branch post office level. 25000 departmental post offices and administrative offices are covered under WAN and more than 1,25,000 against 2,00,000 rural post offices can already carry out online postal and financial transactions. Back end operations are also in sync. Of course there still are some technical issues but it is just matter time.
For digital payment adaptation it is important to have a brick and mortar financial institution within 5 km radius that have all the financial products of savings, deposits, credit, insurance and drawl of cash to build confidence and thus resort to cash less transaction. The SLBC first step should be to map these post offices, banks, RRBs and cooperative banks to cover all rural areas in 5 km radius. The gaps to be declared as ‘shadow areas’ the unbanked areas and banks to open new branches there covers all areas for sustainable financial inclusion efforts. The role of banking correspondent is to shift to be of financial institution mitra to enable cash in and cash out through same PoS machine in every village and educate to open account in these institutions in 5 km radius, and resort to all financial products and graduate to less cash economy.
This is opportunity for post offices to build on the confidence that population has on them right from the day of delivery of money orders. It is best suited for penetration in deep down geographical areas and bring in financial behavior transformation. This will give to Mudra where in recent budget the credit limit has been enhanced to one lac of rupees, similarly the Kisan Credit Card will have debit limits of Rs 50,000 enabling the growth of less cash and easy access to credit by majority of population due to shift to gaining access.
Aruna Sharma is a former secretary at Ministry of Steel, Government of India. The views are personal.
First Published: IST