As many as 25 commercial banks and financial institutions, including Deutsche Bank, State Bank of India, Punjab National Bank, Axis Bank, YES Bank and IDBI have evinced interest in striking a partnership with India Post for their payments bank venture.
The postal department has floated a tender for appointing consultants for the new venture. It is likely to finalise the consultant next month, said a senior official from the department.
“We are in the process of appointing a consultant. Subsequently, we will take a decision on the various proposals by banks and institutions which might take a few months. We are evaluating the proposals,” the official said. In August this year, the Reserve Bank of India (RBI) approved payments bank plans of 11 firms, including Paytm, Reliance Industries, Bharti Airtel, postal department and Vodafone.
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The official said such partnerships could be beneficial for end-users and could enable offerings of mutual funds, insurances and other related products to the customers.
According to RBI guidelines, the first branch of payments bank has to be set up within 18 months. Payments bank will be able to bring out products such as demand deposits and remittances. They will not be allowed to undertake lending activities and initially be restricted to hold a maximum balance of Rs 1 lakh per customer. However, they will be allowed to issue ATM or debit cards as other prepaid payment instruments, but not credit cards. Money remittance is a big segment and 55-60 per cent of these happen in the unorganised sector, while the total market is estimated to be Rs 2 lakh-crore, half of which is in the informal sector.
The department is in the process of preparing a note for approval by the Public Investment Board (PIB) for an investment of around Rs 300-400 crore for payments bank.
After PIB, an approval will be sought from the Cabinet. A wholly-owned subsidiary will be carved out under the DoP for payments bank, which will later become an umbrella firm for a full bank and professionals will be roped in from the private sector to manage the new firm.
Under the payments bank, the initial plan is to have 650 main branches where the department has head or bigger post offices. Subsequently, 25,000 ‘spoke’ branches will be set up while the other 130,000 POs will act as business correspondents.
The new unit will use the existing infrastructure of the postal department and will pay user charges to the department. According to an earlier detailed project report by E&Y 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.