India’s bid for expanding financial inclusion received a minor setback on Monday. A mere 26 applications were received for new bank licences by the Reserve Bank of India (RBI) on July 1, 2013. The numbers were disappointing since nearly half of Indian population is unbanked and at the time of announcement many corporate houses had expressed interest in applying for a bank licence. Comparatively, in 1993 there were 113 aspirants when applications for new banks were invited for the first time. In 2003, there were about 100 applicants.
The bunch of applications has some surprises. Besides some unknown names, the application which has puzzled RBI is one by the Indian postal department. The rules for new bank licence released in February 2013 spoke about new bank licences for the private sector. By that definition the postal department is ineligible. The department had also earlier faced opposition from the Indian finance ministry. North Block’s argument was that the department lacks the expertise. India Post says it can significantly boost financial inclusion in Asia’s third largest economy through its nearly 155,000 post offices. India Post already offers an array of financial services which include post office savings schemes, postal life insurance, mutual funds and forex services. Postal savings schemes have been around for ages. Post Office Savings Banks were opened in India by the British on April 1, 1882. Today, the post office offers a number of savings plans, including National Savings Certificates, the Public Provident Fund, savings bank accounts, monthly income plans, senior-citizens’ savings plans and time-deposit accounts. The Government of India recognises the important role post offices play as financial services hubs for the unbanked, and is using them for direct benefit transfers i.e. cash subsidy payments. India Post has the reach and history to be a banker. It can always hire specialists if needed. Deutsche Postbank is an example of a postal department’s successful foray into fulltime banking.
India Post can play an even bigger role in financial inclusion as it also deals in insurance. Postal life insurance debuted on February 1, 1884 as a welfare measure for the employees of the Posts & Telegraphs Department. Today postal life insurance is available to employees of all central and state government employees, nationalised banks, public sector and financial institutions, local municipalities, district councils and educational institutions receiving government subsidy. It was extended to all rural residents on March 24, 1995. The targeted population of the financial inclusion drive needs better insurance coverage, especially for their livelihood. The limited coverage and benefits of the National Agricultural Insurance Scheme point to demand-supply gap when it comes to the insurance needs of this stratum of the society. Micro-insurance programmes which cater to the real needs of the poor need to be developed. The post offices and employees are trusted by the poor and should be utilised for promoting financial inclusion.