Postal dept gets moving after payments bank approval

Will finalise note for investment approval of Rs 300-400 crore; subsidiary to be created for the venture to leverage national branch network

A day after getting a nod for setting up a payments bank, the department of posts (DoP) has begun to take this forward. Investment of Rs 300-400 crore will go into the venture, for which it has started preparing a note for approval by the Public Investment Board (PIB).

After PIB, approval will be sought from the Cabinet. A wholly-owned subsidiary will be carved out under DoP for a payments bank, to later become an umbrella entity for a full bank. Professionals from the private sector will be hired, a senior official told Business Standard.

Amendments will have to be made in the financial rules of the department to include banking as a mandate, the official added.

The department is open to partnerships with the other entities which got a payments bank licence on Wednesday from the Reserve Bank of India (RBI). As many as 11 applications — including Bharti Airtel, Reliance Industries and Vodafone — were approved in principle.

Under the payments bank, the initial plan is to have 650 main branches where the department has a head or bigger post offices. Subsequently, 25,000 ‘spoke’ branches will be set up. The other 130,000 POs will act as business correspondents.

The new unit, to be financially and administratively independent, will use the existing infrastructure of the  department and pay user charges to the latter.

According to an earlier detailed project report by Ernst & Young for DoP, the payments bank will be able to break even in five years, once operations start. And, DoP will earn revenue of Rs 250 crore in the first year from the new banking entity, expected to go up to Rs 600-700 crore annually in the five years.

Money remittance is a big segment and 55-60 per cent of these happen in unorganised sector. The remittance market is estimated to be Rs 2 lakh crore.

By RBI guidelines, the first branch of a payments bank has to be set up within 18 months. These banks will be able to offer demand deposits and remittances. They will not be allowed to lend and will initially be restricted to hold a maximum balance of Rs 1 lakh a customer. They will be allowed to issue ATM or debit cards but not credit cards.

In the Budget speech this year, Finance Minister Arun Jaitley had said the government was committed to increase the access of people to the formal financial system. “The government proposes to utilise the vast postal network, with nearly 154,000 points of presence spread across the villages of the country. I hope the postal department will make its proposed payments bank venture successful, so that it contributes further to the Pradhan Mantri Jan Dhan Yojana,” he’d said.