May get licence from RBI in August; the bank is projected to earn a revenue of Rs 2,365 cr over the first five years
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The postal department has decided to rope in professionals from the
private sector for top positions at Post Bank of India (PBI), its
proposed fully-owned payments bank.
As PBI is to use the department's infrastructure - real estate, office premises, computers, information technology system and a large part of its staff - to run the payments bank, the department expects to earn a revenue of Rs 2,365 crore over the first five years of operations, through transfer pricing. This will help the government reduce the subsidy it annually gives the department for running its operations.
The postal department's deficit for 2015-16 has been pegged at around Rs 6,665.09 crore, according to Budget documents. This had stood at Rs 6,377.89 crore the previous year, and Rs 5,339.28 crore in 2013-14.
According to sources, the Reserve Bank of India (RBI) could approve issue of licence for this payments bank by August this year, after which the process for setting it up might start.
Within three months of getting the licence, the department will hire key resources like chief executive officer, chief financial
officer, chief operating officer, chief people officer and chief risk
officer, according to a presentation recently made before Communications
Minister Ravi Shankar Prasad.
This core team will take up the increased responsibility during the first 12-18 months after approval of licence, and assume full charge around the date of the launch. PBI is expected to become viable within three years of operations and is projected to generate annual profits of about Rs 91 crore by the end of five years.
The department will soon move a Cabinet note for approval of Rs 650 crore as investment in the proposed payments bank.
For PBI, the plan is to have a hub-and-spoke model. There will be 650 main branches where the department will have head or bigger post offices. Subsequently, 25,000 'spoke' branches will be set up, while some 130,000 post offices with act as business correspondents for the payments bank.
The idea will be to target rural customers with products like small savings accounts, payments/remittances services and assistance in getting loans and insurance products from third-party institutions. For urban customers, the products will include pre-paid wallets for easy remittances and micro insurance products. Also, there will be an attempt to tap micro and small businesses with their products. The focus will be on high-volume, low-value transactions and providing small savings accounts and payment services to migrant labour, low-income households and the unorganised sector, according to the presentation.
The department had earlier proposed a fully-owned and new entity as an umbrella firm for its four or five strategic business units, to look after banking & financial services and insurance, and for offering third-party products, besides e-commerce and management of government services.
And, a few of these units will be hived off into separate entities; a feasibility study for setting up new units will start sometime this year.
The postal department has a 150,000-strong network of post offices across the country which directly employ 500,000 people. The department is largely moving in line with the report of a panel headed by former Cabinet Secretary T S R Subramanian in this regard.
In the Budget speech this year, finance
Minister Arun Jaitley had said the government was committed to
increasing people's access to the formal financial system. "The
government proposes to utilise the vast postal network, with nearly
154,000 points of presence across 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."
While remittance is a big segment, 55-60 per cent of this happens through the unorganised sector. The department is looking to strengthen its foothold in this space. Half of India's remittance market,
estimated to be worth Rs 2 lakh crore, is in the informal sector, and
does not reflect in official numbers (on remittances through India Post,
mobile wallets, etc) for want of clarity on definition of migrants.
Apart from India Post, other applicants for a payments bank licence include Bharti Airtel, Vodafone India, Idea Cellular, Uninor and Reliance Industries. Unlike full-fledged banks that make money on
float through arbitrage - they lend money at higher interest rates than
what they pay depositors, and do not charge on transaction services -
this proposed payments bank will charge for services, primarily
cash-outs and cash-ins. The proposed entity could deposit the amount in
government securities and earn annual interest at 8-8.5 per cent, and it
might give customers three to four per cent on the amount. However,
unlike scheduled banks, they will not be allowed to use the cash for
giving loans.
As PBI is to use the department's infrastructure - real estate, office premises, computers, information technology system and a large part of its staff - to run the payments bank, the department expects to earn a revenue of Rs 2,365 crore over the first five years of operations, through transfer pricing. This will help the government reduce the subsidy it annually gives the department for running its operations.
The postal department's deficit for 2015-16 has been pegged at around Rs 6,665.09 crore, according to Budget documents. This had stood at Rs 6,377.89 crore the previous year, and Rs 5,339.28 crore in 2013-14.
According to sources, the Reserve Bank of India (RBI) could approve issue of licence for this payments bank by August this year, after which the process for setting it up might start.
Within three months of getting the licence, the department will hire key resources like chief executive officer, chief financial
officer, chief operating officer, chief people officer and chief risk
officer, according to a presentation recently made before Communications
Minister Ravi Shankar Prasad.
This core team will take up the increased responsibility during the first 12-18 months after approval of licence, and assume full charge around the date of the launch. PBI is expected to become viable within three years of operations and is projected to generate annual profits of about Rs 91 crore by the end of five years.
The department will soon move a Cabinet note for approval of Rs 650 crore as investment
in the proposed payments bank.
For PBI, the plan is to have a hub-and-spoke model. There will be 650 main branches where the department will have head or bigger post offices. Subsequently, 25,000 'spoke' branches will be set up, while some 130,000 post offices with act as business correspondents for the payments bank.
The idea will be to target rural customers with products like small savings accounts, payments/remittances services and assistance in getting loans and insurance products from third-party institutions. For urban customers, the products will include pre-paid wallets for easy remittances and micro insurance products. Also, there will be an attempt to tap micro and small businesses with their products. The focus will be on high-volume, low-value transactions and providing small savings accounts and payment services to migrant labour, low-income households and the unorganised sector, according to the presentation.
The department had earlier proposed a fully-owned and new entity as an umbrella firm for its four or five strategic business units, to look after banking & financial services and insurance, and for offering third-party products, besides e-commerce and management of government services.
And, a few of these units will be hived off into separate entities; a feasibility study for setting up new units will start sometime this year.
The postal department has a 150,000-strong network of post offices across the country which directly employ 500,000 people. The department is largely moving in line with the report of a panel headed by former Cabinet Secretary T S R Subramanian in this regard.
In the Budget speech this year, finance
Minister Arun Jaitley had said the government was committed to
increasing people's access to the formal financial system. "The
government proposes to utilise the vast postal network, with nearly
154,000 points of presence across 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."
While remittance is a big segment, 55-60 per cent of this happens through the unorganised sector. The department is looking to strengthen its foothold in this space. Half of India's remittance market
,
estimated to be worth Rs 2 lakh crore, is in the informal sector, and
does not reflect in official numbers (on remittances through India Post,
mobile wallets, etc) for want of clarity on definition of migrants.
Apart from India Post, other applicants for a payments bank licence include Bharti Airtel, Vodafone India, Idea Cellular, Uninor and Reliance Industries. Unlike full-fledged banks that make money on
float through arbitrage - they lend money at higher interest rates than
what they pay depositors, and do not charge on transaction services -
this proposed payments bank will charge for services, primarily
cash-outs and cash-ins. The proposed entity could deposit the amount in
government securities and earn annual interest at 8-8.5 per cent, and it
might give customers three to four per cent on the amount. However,
unlike scheduled banks, they will not be allowed to use the cash for
giving loans.
COMING SOON: POST BANK OF INDIA
Licence: It is expected to be approved by the RBI in August
Hiring: Within the first three months of getting the licence, key senior-level resources will be hired by the department
Revenue: The bank is projected to earn a revenue of Rs 2,365 cr over the first five years
Branches: The plan is to have 650 main branches where the department has head or bigger post offices
Target: Rural customers, with products including small savings account, payments/remittances services