Dear Comrades
Please read the Editorial
of the Economic Times dated 26.03.2013.
It argues for grant of
licence to India Post to open Postal Bank of India .It puts forth that the
India Post will be a unanimous and automatic choice for extending new bank
licence for the main reason that it will pave way financial inclusion of all in our country.
Further you may also read
an article opposing the above editorial views of the ET .This article appears
in the website www.moneycontrol.com
written by R Jagannathan on 26.03.2013.
Both these articles will certainly elucidate
our points over this matter .
Editorial of the Economic Times dated
26.03.2013
Financial
inclusion: New Post Bank of India is an excellent idea
ET Bureau Mar 26, 2013, 05.32AM IST
The marginal cut in small savings interest rates on Monday turns the
spotlight on the post office as a potential candidate for a new bank licence.
India Post seldom
figures in the list of those reportedly vying for a bank licence, but its
credentials fit the bill almost to a T. Consider. A prime reason for issue of
new bank licences is financial inclusion. By that criterion, India
Post is an automatic choice.
With close to 1,55,000
offices, a majority of them in rural and semi-urban areas, and 30 crore deposit
accounts, India Post can do what commercial banks have tried to over the
years, but with limited success.
It can bring vast
unbanked sections of the population under the formal banking network. It
already does virtually everything a bank does, except granting loans.
Most post offices are
already computerised and interest rates on small savings have been partly
deregulated, so there is no reason why it cannot upgrade its operations and
take up the full gamut of banking operations.
There are enough
examples all over the world, notably in Japan and Germany, of post offices successfully offering
banking services. What about the strict norms laid down by the RBI for
grant of new bank licences? Will India Post be able to make the grade?
It is advantageously
placed on many counts: ability to meet the minimum paid-up equity (Rs 500
crore), a satisfactory "past record of sound credentials and
integrity" with a successful track record of 10 years and, most important
of all, it will be able to meet the requirement of having at least 25% of its
branches in unbanked rural areas with a population of less than 10,000.
There is only one
aspect where India Post might find compliance difficult: the requirement that
the bank should be set up through a wholly-owned non-operative financial
holding company.
But this is a problem
it shares with stateowned banks, which calls for a common solution. It should
certainly not be a stumbling block to creating a new Post Bank of India.
Courtesy : Economic
Times
Mar 26, 2013, 04.01 PM IST
If India Post can run a bank, so can anyone with land
Source: Moneycontrol.com
by R
Jagannathan, Firstpost
No matter how many times
a bad idea is killed in India, it has a way of resurfacing in some form or the
other. Despite being shelved several times over the last two decades, the idea
of a Post Bank of India never dies a complete death. It is re-emerging, this
time riding the catch-all justification called "financial inclusion".
That even a
business-literate newspaper like The Economic Times is now championing the idea
is indicative of the inherent attraction of the flawed
your-beauty-and-my-brains logic. Hey, I have 1.55 lakh branches, and you need
financial inclusion. So make me a bank.
In an editorial today ,
the pink daily says: "India Post seldom figures in the list of those
reportedly vying for a bank licence, but its credentials fit the bill almost to
a T. Consider. A prime reason for issue of new bank licences is financial
inclusion. By that criterion, India Post is an automatic choice. With close to
1,55,000 offices, a majority of them in rural and semi-urban areas, and 30
crore deposit accounts, India Post can do what commercial banks have tried to
over the years, but with limited success."
Look at the logic
closely and what the editorial is saying is this: India Post has a lot of real
estate in villages and financially excluded places, It is already taking in
deposits, so it is ready to become a bank.
If it were that simple,
any retailer with real estate in the right places should be ideally positioned
to become a bank. How about Bata as a semi-urban bank? Why not every rural
police station? Even better, they could guard the cash better. There are lots
of kirana stores in rural areas. Why not give them a bank franchise?
We have to look at the
real reasons that are driving this proposal to debunk the idea.
One, India Post is making losses. So we need a bank to bring in the
profits. In this financial year,losses could top Rs 6,800 crore .
Counter-argument: If you can’t run your existing business well, and costs escalate
independently of revenues, how are you going to run another business (banking),
which you know nothing about, well?
Two, India Post's core business delivering letters and parcels is
gutted. This is because the profitable part of the business has been taken over
by private couriers. So India Post needs a new business to run. So why not
banks?
Counter-argument: If your main business is a losing proposition, you either need
to shut it down or seek a new idea that is contiguous to it. If no one is
writing letters, why not convert post offices into cyber cafes, which print
email? If email is the new postcard, why not make email and letter-printing the
new business of rural POs? This may not bring profits, but will at least cut
down losses. But there could be even better ideas for leveraging India Posts
people and real estate.
Three, India Post is
overstaffed. The department of posts has 4,87,621 people employed in it and it
plans to spend over Rs 10,900 crore on them in 2013-14. A bank will presumably
soak up some of the excess staff.
A modern bank needs
completely different manning and automation levels, and if these skills are
available more in urban areas, you won't be able to get competent people to
serve time in villages
A modern bank needs
completely different manning and automation levels, and if these skills are
available more in urban areas, you won't be able to get competent people to
serve time in villages.
Counter-argument: There is no way bureaucratic post office personnel can become
modern bankers, at least not all of them. A modern bank needs completely
different manning and automation levels, and if these skills are available more
in urban areas, you won't be able to get competent people to serve time in
villages. The answer to overstaffing is not a new business, but humane forms of
retrenchment.
Four, there is the financial inclusion argument we talked about right
at the outset.
Counter-argument: Financial inclusion does
not mean you become a bank. You can team up with an existing bank or many banks
and make them pay rent (or share profits) for the space they occupy in rural
post offices. This is a risk-free way to leveraging 1.55 lakh post offices for
financial inclusion.
Five, there is the point that post offices anyway run deposit schemes,
so why not make them give out loans as well? Like a full-fledged bank?
Counter-argument: Post offices are very poor at servicing customers. Check with
any post office and find out who likes doing business there. People are forced
to go there only because that is where tax-saving schemes like NSCs and post
office monthly income schemes are sold. Also, it is easy to stash black money
in post office savings schemes.
Six, other countries have done it. Germany has a post office bank,
and so does Japan. So why not India Post?
Counter-argument: These countries set up their post banks long ago, and they also
have better standards of governance and accountability. We don't. Somebody
doing something does not automatically mean we should do the same.
What post offices may be
competent at could be taking in deposits. There may thus be a case for giving
them a licence to become deposit-taking institutions, without lending operations.
This is way short of making the post office a bank. Lending needs different
skills including money management, risk assessment, and the ability to monitor
credit accounts on a continuous basis. Post offices have no such skills.
However, if one accepts
that even public sector banks have not been particularly good at managing bad
loans, and tend to lend money under political pressure, post offices will be
even more vulnerable since they will be operating in rural areas where thugs
and rural vested interests operate. Unlike nationalised banks, many of which
are listed, an unlisted Post Office Bank of India will be continually under
political tutelage. What we will end up creating is yet another institution
that soaks up capital from the exchequer without any kind of public
accountability.
So what are the best
options?
The best option is for
the post office to team up with banks in specific regions either for a fixed
annual payment or even for free (government owns post offices and banks, after
all). If Bank of India teams up with all post offices in Maharashtra to set up
branches, you will automatically have rural inclusion and better banking sense.
The second-best option
is to allow the Post Bank of India to become a "narrow bank" one that
only takes in deposits, does limited cash management, and invests wholly in
government bonds but does no commercial lending that can result in bad loans.
This way returns will be lower, but if financial inclusion is the goal, lower
returns will be acceptable. There will also be no risk of frequent government
bailouts or huge capital infusions every other year.
But as far as the
depositor is concerned, it will be a real bank which issues cheque books, and
allows people to draw or deposit cash.
The worst option is to
make Post Office Bank a real bank. It will be a permanent albatross around the
taxpayer's neck.
Courtesy: www.moneycontrol.com
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