Payments Banks have now become a reality for the Indian banking industry. Government-run courier service India Post incorporated a Public Sector Bank, India Post Payments Bank (IPPB) under the Department of Posts with 100% GOI equity. IPPB on January 30, 2017 and kicked off its operations by rolling out pilot services in Raipur and Ranchi. This is the second payments bank to start operations after Airtel Payments Bank.
India Post plans to open 650 new branches of IPPB in its first phase by September, with the objective of being present in all corners of India by the end of the year. Currently, the department of post has an existing network of around 1,55,000 post offices, of which 1,39,222 post offices are located in rural areas. With such a wide reach, IPPB has great potential to effectively improve financial inclusion in India.
Here is all you need to know about India Post Payments Bank.
So what Is Payments bank?
Payments banks are a new banking model. Unlike other commercial banks, payment banks are not allowed to give credit or loans. Those having a bank account in a payment bank can keep deposits up to ₹ 1 lakh. Account holders in these banks get cheque books, debit card and interest on their deposits. These banks are part of the digital banking ecosystem.
The RBI guidelines say that payment bank licenses would be granted to mobile firms, supermarket chains, and others, to cater to individuals and small businesses. The goal is to provide basic financial services, including payments of all sorts, social security and utility bill payments, remittance services, current and saving accounts with a balance of up to ₹1 lakh.
How it will work?
- Accepts deposits up to ₹ 1,00,000 only per individual customers and will pay interest on deposits.
- Issues ATM, Debit cards that can be used across all ATM networks.
- Enable transfers and remittances through a mobile phone.
- Offers services such as automatic payments of bills, cashless payment through a phone.
- Can transfer money directly to bank accounts at nearly no cost.
The payments bank will offer an interest rate of 4.5% on deposits up to ₹25,000; 5% on deposits of ₹25, 000-50,000 and 5.5% on ₹50, 000-1,00,000.
“The idea is to have a branch in every district and make 3 lakh postmen come alive in payment bank function,” Also 1,000 ATMs of India Post will be transferred to IPPB, its Chief Executive Officer A.P. Singh said.
Terming IPPB as a mechanism for financial inclusion and a milestone, Sinha said the payments bank — the third one to get a permit after Airtel and Paytm and the first one promoted by the government — will not just conduct business but also serve people.
Apart from the vision and structure, IPPBs will work to ease access and handhold the adoption of new age banking and payments instruments among citizens of all walks of life through the delivery by postmen and Grameen Dak sevaks, savings agents and other franchisees who will take banking to the doorsteps of the people.
How it will help in financial inclusion?
India, which is home to 21 per cent of the world’s unbanked adults, faces a significant challenge in catching up with the rest of the world in universalising banking access. Think of the huge number of government subsidies and cash programs that are meant to encourage development in villages, and consider how, to access these payments, villagers would have had to travel for hours to nearby cities in order to visit a bank branch, where the experience was frequently alienating. Instead, the friendly postman villagers meet every day could be their banking relationship manager! With its already existing huge rural base it will be a game change for Indian banking system.
Also, India’s domestic remittance market is estimated to be about ₹800 billion-₹900 billion and growing. With money transfers made possible through mobile phones, a big chunk of it, especially that of the migrant labour, could shift to this new platform. Payment banks can also play a crucial role in implementing the government’s direct benefit transfer scheme, where subsidies on healthcare, education and gas are paid directly to beneficiaries’ accounts.
Interestingly, this is the first time in the history of India’s banking sector that RBI is giving out differentiated licences for specific activities.