India Post needs to become a corporate for banking foray

A government-run entity cannot come under RBI purview

While most of the 26 applicants for banking licence were usual suspects, there were a few surprises, too. And there was at least one unusual name, although its banking ambition was well known.

The application by the Indian postal department, a division of the ministry of communications & information technology, has raised some curiosity within the Reserve Bank of India (RBI). This is because RBIs new bank licence norms released in February this year  talked about new bank licences in the private sector.

Since India Post is a part of a ministry, it cannot be considered as a private sector entity. According to RBI sources, to be eligible for a bank licence, India Post will have to become a corporate entity, because a government department cannot come under RBI purview. For example, if they are found violating the know-your-customer (KYC) or anti-money laundering norms, how can the regulator impose penalty against the sovereign, asked an RBI official.

India Post has for long wanted to diversify into a bank and had held discussions with RBI on this. According to experts, while the postal departments huge rural presence definitely gives it an edge to get a licence because both RBI and the government are emphasising on financial inclusion.

Technically, there are challenges on whether it fulfils the prescribed criteria but its reach definitely makes it a strong contender, sources said.

According to the final guidelines on a new bank licence, RBI has mandated 25 per cent of bank branches to be opened in un-banked rural areas. New banks should also meet priority sector norms right from inception.

Globally, there are examples of postal departments diversifying into lending activity. Deutsche Postbank  the Bonn-headquartered German retail bank  was formed from the de-merger of the postal savings division of Deutsche Bundespost in 1990.

With around 14 million clients, 19,000 employees and total assets amounting to ^170 billion, the Postbank Group is one of Germanys largest financial service providers. According to its website, the lender focuses on business with private customers as well as small and medium-sized companies.

The 26 entities that have applied to RBI include the Tata Group, Aditya Birla Group, the Anil Ambani Group, heavy engineering major L&T and a host of non-banking financial companies, including a gold loan company. Two micro finance companies have also applied.

Of the 26 applicants, there are usual suspects, but some surprises, too. There are a few names which meet the minimum requirement, but could rank low in terms of relative probability to get a licence. We expected a higher number of applicants, maybe around 30-35, said Monish Shah, senior director, Deloitte Touche Tohmatsu India.