Friday, December 5, 2014

Task force moots new Act to set up Post Bank of India

Task force moots new Act to set up Post Bank of India

NEW DELHI: A task force set up to suggest ways for turning around India Post has proposed creating a full-fledged postal bank through an Act of Parliament, one which can leverage its massive network of 1,55,000 post offices, furthering the government's plans of financial inclusion.

The report from the panel, headed by former cabinet secretary TSR Subramanian, has suggested that a holding company be set up 100%-owned by the Department of Posts, with commercial subsidiaries for postal bank, e-commerce, insurance, delivery of various government services including 
Aadharration cards and Kisan Vikas Patra, and distribution of third party products, such as bill collections and payments.

 "The task force is of the view that the 
PBI (Post Bank of India) should be set up under an Act of Parliament and that establishing PBI as a statutory institution and a government bank would enhance its credibility, insulate it from local pulls and greatly facilitate its operations," the report said, indicating that the Reserve Bank of India (RBI) need not be approached for setting up this entity.
"PBI must be professionally managed and operated, with credit and other risks being handled by experienced experts hired from the market. In its own interest, operations must be fully in line and compliant with RBI guidelines," the report added. The committee has also suggested an initial capital investment of Rs 500 crore for the postal bank, which can come from the government.

After three to five years, the government can then decide to raise additional capital via an initial share sale or involve private equity after assessing the success of this project. The postal bank will offer comprehensive financial services including regular banking credit, deposit and loans. To begin with, the PBI should give loans up to Rs 1 lakh and a second loan will be granted only after the first loan is paid back.

The proposed banking services will use existing infrastructure of about 1,55,000 post offices, which will function as business correspondents for the postal bank. The task force, which includes Department of Posts secretary Kavery Banerjee, telecom secretary Rakesh Garg, Department of Electronics and IT secretary RS Sharma, rural development secretary LC Goyal, former Sebi chairman GN Bajpai, and former InfosysBSE -0.68 % board member TV Mohandas Pai, was set up by Prime Minister Narendra Modi in August.

It expects direct employment of 5 lakh under this endeavour over three to five years. The recommendations come as a shot in the arm for India Posts, which has been seeking a full service bank permit since last year when it had applied for a banking licence with the RBI along 25 others.

It did not get the permit. The panel, however, is not in favour of India's postal service becoming a payment bank or a small bank as it will limit the usage of India Post's massive infrastructure across the country and only offer few limited services and not large-scale loans, which a commercial bank can.

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