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India Post Payments Bank – a major initiative towards financial inclusion

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A payments bank is like any other bank, but operating on a smaller scale without involving any credit risk. In simple words, it can carry out most banking operations but can’t advance loans or issue credit cards. It can accept demand deposits (up to Rs 1 lakh), offer remittance services, mobile payments/transfers/purchases and other banking services like ATM/debit cards, net banking and third party fund transfers.

 In September 2013, the Reserve Bank of India constituted a committee headed by Dr Nachiket Mor to study ‘Comprehensive financial services for small businesses and low income households’. The objective of the committee was to propose measures for achieving financial inclusion and increased access to financial services.

The committee submitted its report to RBI in January 2014. One of the key suggestions of the committee was to introduce specialised banks or ‘payments bank’ to cater to the lower income groups and small businesses so that by January 1, 2016 each Indian resident can have a global bank account.

Why are Payments banks important?

This is the first time in Indian history the RBI has granted banking authority to other non-banking financial sectors and has provided a second set of differentiated licenses to small-scale banks already. This initiative is aimed at redefining the Indian economy by providing a secure payment gateway for all transactions. It also reaches out to the migrant labourers and lower income groups by providing all services on mobile phones and issuing a very low transaction fee for every service. After demonetization, this is the RBI’s second move to eliminate black money and promote cashless transactions to digitise India. Since it is an initiative to go cashless, it eliminates the need to exchange bad currency notes and the cost of regeneration of fresh notes. This scheme has already been introduced worldwide and has been a groundbreaking success in Kenya. Keeping these pointers in mind, there is no doubt that payment banks are the future of banking and are going to be a game-changer in the financial sector.

India Post Payments Bank

India Post Payments Bank (IPPB) was setup under the Department of Posts, Ministry of Communication with 100% equity owned by Government of India. IPPB was launched as a pilot project on 30 January 2017 in Ranchi (Jharkhand) and Raipur (Chhattisgarh), with the objective of being present across India by the FY 2018-2019. 

The First Phase,  at the time of PAN-India, will be as follows:

  • Branches/Controlling Offices
    650 Branches/Controlling offices (~one branch in each district)
  • Access Points
    3,250 Post Offices across urban and rural India activated as banking access points for launch
  • Counter and Doorstep Services
    10K+ Postmen/GDS ready to provide Doorstep banking services at launch

Prime Minister Narendra Modi launched India Post Payments Bank (IPPB) at Talkatora Stadium in New Delhi on Saturday. India Post Payments Bank will focus on providing banking and financial services to people in rural areas, by leveraging the reach of 1.55 lakh post office branches. “On the day of the launch, IPPB will have 650 branches and 3,250 access points spread across the country,” the government said in a statement. The government aims to link all the 1.55 lakh post offices to the India Post Payments Bank system by 31 December, 2018.

 

Things to know about India Post Payments Bank

1) India Post Payments Bank has been set up under the Department of Posts, Ministry of Communication, with 100% equity owned by Government of India.

2) It started operations on 30 January, 2017, by opening two pilot branches, one at Raipur and the other at Ranchi.

3) India Post Payments Bank will offer 4 per cent interest rate on savings accounts.

4) Payments banks can accept deposits of up to Rs 1 lakh per account from individuals and small businesses, but do not have the mandate to extend loans.

5) But India Post Payments Bank will, in alliance with other financial service providers, offer third-party products. For example, in case of loans, India Post Payments Bank will work as an agent of PNB.

6) India Post Payments Bank will offer a range of products such as savings and current accounts, money transfer, direct benefit transfers, bill and utility payments, and enterprise and merchant payments.

7) These products, and services, will be offered across multiple channels (counter services, micro-ATM, mobile banking app, SMS and IVR), using the India Post Payments Bank’s technology platform.

8) India Post Payments Bank has been allowed to link around 17 crore postal savings bank (PSB) accounts with its accounts.

9) India Post Payments Bank “has been envisioned as an accessible, affordable and trusted bank for the common man,” the government said in statement. It will leverage the vast network of the Department of Posts, which covers every corner of the country with more than 300,000 postmen and grameen dak sewaks.

10) The Cabinet earlier this week approved an 80% increase in spending for India Post Payments Bank (IPPB) to Rs 1,435 crore. The increase will take the IPPB project outlay to Rs 1,435 crore from Rs 800 crore — giving it additional firepower to compete in the market with existing operators like Airtel Payments Bank and Paytm Payments Bank.

 

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