Red Signal from Ministry of Finance to the banking plans of India Post

Mumbai: The finance ministry has opposed India Post’s plan to seek a commercial banking licence from the Reserve Bank of India (RBI) on grounds that the postal service doesn’t have the expertise needed in relevant areas, such as handling credit.
India Post is keen to set up a commercial bank called the Post Bank of India, arguing that it can significantly boost financial inclusion in Asia’s third largest economy through its nationwide network of 155,000 post offices.This will also allow the organization, which posted a loss of Rs.6,346 crore in fiscal 2012, to make up for business dropping off over the years as letter writing dwindled and private courier firms took away market share.Losses have significantly increased in recent years on account of higher expenses.
However, the finance ministry’s department of financial services doubts India Post’s ability to set up and run a bank, according to a senior postal department official who didn’t want to be named.Some of the country’s large public sector banks have also been lobbying against the proposal, concerned that India Post, with its vast branch network, could pose a threat to their business, said the official, who’s directly involved with the proposal.
“The larger idea of setting up a bank is to further the cause of financial inclusion. Entry of India Post into banking can significantly help address this situation,” the official said.However, “They (finance ministry officials) are asking too many questions. Why (do) you need a bank? What is your expertise to run a bank?” the official said.India Post is engaged in several related functions, such as running a savings bank scheme, selling tax-saving instruments and accepting public provident fund deposits. The government also uses post office accounts to route payments to beneficiaries as part of the rural jobs programme and the direct transfer of subsidies.A former government official said the postal department should focus on its existing business.“It is totally illogical for the postal department to enter into banking. They do not have the experience in handling credit or the ability to manage a bank,” said D.K. Mittal, who was finance secretary till recently.“Mere experience in collecting deposits under the post office scheme is not enough. The department should ideally focus on improving their core activity.”According to Mittal, the department should adopt new technology and try to become profitable instead of diversifying operations.Emails to financial services secretary Rajiv Takru last week remained unanswered.
RBI invited applications from private and public sector entities in February to set up banks, three years after former finance minister Pranab Mukherjee made the suggestion and nine years after the last round of licences were issued.The application deadline expires on 1 July. The minimum capital required by applicants is Rs.500 crore.