Financial Inclusion: India Post Payments Bank

Why in news?
=>The Prime Minister launched the India Post Payments Bank (IPPB) at Talkatora Stadium in New Delhi. It is expected that through =>the India Post Payments Bank, banking services will conveniently reach the remotest places in the country, and the people living there. IPPB branches have been opened across 650 districts.

What is IPPB?
=>The India Post Payments Bank is a public sector company under the department of posts and ministry of communication where the Indian government holds 100 per cent equity. The payments bank will be governed by Reserve Bank of India. All the 1.55 lakh post offices in the country will be linked to the IPPB system by December 31, 2018.
=>IPPB will offer a range of products such as savings and current accounts, money transfer, direct benefit transfers, bill and utility payments, and enterprise and merchant payments. These products, and related services, will be offered across multiple channels (counter services, micro-ATM, mobile banking app, SMS and IVR), using the bank’s state-of-the-art technology platform. The plan is to use all of India Post’s 1.55 lakh access points by December 2018 to provide the service.
=>The IPPB will not offer any ATM debit card. Instead, it will provide its customers a QR Code-based biometric card. It has already tied up with PNB Metlife and Bajaj Allianz to sell insurance products and hopes to enter into more financial service partnerships.

Types of Savings in IPPB:
=>It offers three types of savings accounts—regular, digital and basic. As the name suggests, a digital savings account can be opened through the IPPB mobile app while the remaining two have to be done either through the post office or the postman. Besides the ease of making payments, the best part of these three savings accounts is that they come without any liability of maintaining a minimum balance. IPPB savings accounts are therefore zero-balance accounts.

Minimum/maximum balance rules:
=>Since these are zero-balance accounts there are no minimum balance rules. The Reserve Bank of India (RBI) has restricted all payments bank account holders to hold more than Rs 1 lakh in any account at a given point of time.
=>All IPPB accounts attract an interest rate of 4% per annum.

Deposit/withdrawal rules:
=>In regular and digital savings accounts, you can also withdraw or deposit as many times as you want. In case of a basic savings account, there is a restriction of 4 cash withdrawals monthly. For cash deposits and withdrawals, you need to go to the nearest post office where the IPPB service is available.
=>You can also call the postman or Grameen Dak Sevaks (GDS) home and make both digital and cash transactions using the QR card you get with your IPPB account. However, doorstep banking isn’t free. You have to pay Rs 25 for every cash-based transaction at your home and Rs 15 for a digital transaction at home.

Digital savings account rules:
=>Like other payments bank, IPPB also allows opening of digital savings accounts so that you can open them at home without hassles. However, it is valid only till 12 months. Within a year you have to convert it into a regular savings account by providing your biometric data to the postman. If you fail to do so, the digital savings account will be closed.

How it will help in financial inclusion?
=>The postman has long been a respected and accepted person in the villages. The Government’s approach is to reform existing frameworks and structures, and hence, transform them in accordance with the changing times.
=>There are over 1.5 lakh post offices and over three lakh postmen or “grameen dak sevaks” who are connected to the people of the country. Now they shall be empowered with smartphones and digital devices to provide financial services.
=>The IPPB will enable money transfer, transfer of government benefits, bill payments and other services such as investment and insurance. He added that postmen would deliver these services at the doorstep.
vThe IPPB will also facilitate digital transactions, and help deliver the benefits of schemes such as Pradhan Mantri Fasal Bima Yojana, which provide assistance to farmers.

Why there is need for financial inclusion?
=>According to data quoted in a financial inclusion survey conducted by the National Bank for Agriculture and Rural Development (NABARD) and released recently, despite the massive push under the Jan Dhan Yojana, about 190 million adults or approximately 40 million households are still unbanked.
=>Bringing them into the institutional framework of the formal economy is daunting, no doubt, but realising the potential will be a real game changer for rural India. At the least their entry into the formal economy will create a credit history for individuals and households. It is key, as is being discovered by agencies mining such data, to fund working capital loan requests in urban India.
=>For long, part of India largely denied the benefits of growth despite being the largest votebank, has due to the lack of this institutional support been forced to fend for itself by leaning on usurious money lenders.
=>Changing needs of Indian agriculture as it embarks on the value added route and mechanization has only forced up credit demand from such informal resources disproportionately increasing the risk of sliding into a debt trap.
=>Part of the reason is also the fact that the existing institutions have dealt with the credit needs of rural India without understanding their peculiar behavioural characteristics defined to a large extent by the inbuilt volatility and seasonality of farming.
How it will be a game-changer?
=>For instance, the same NABARD survey cited earlier points out that more than one in two adults residing in rural India exhibited sound financial behaviour. Yet only one in 10 were assessed to possess good financial literacy. Clearly, a supply-side solution is waiting to happen.
=>This is why the India Posts initiative to set up a payments bank is significant. It will be employing the iconic postman, who has over the years developed personal familiarity with rural households and will therefore, unlike strangers, enjoy a trust advantage.
=>The idea of doorstep delivery of services, like the one being attempted by the Delhi government, would further accelerate disintermediation in the delivery of public services and reinforce this special relationship with the postman and consequently IPPB.
=>Especially since one of the functions of the payments bank is to provide access to third-party financial services such as insurance, mutual funds, pension, credit products and forex—all of which are crucial in creating a wealth management culture to smoothen out the spikes in credit needs which inevitably create circumstances for a debt trap.

Other Government initiatives:
=>Since 2014, the Union Government has been dealing firmly with the distortions and problems that had arisen in India’s banking sector due to indiscriminate loan advances. The existing loans have been reviewed and a professional approach has been taken with regard to the banking sector. Other measures such as the Fugitive Economic Offenders Bill, also have been taken to ensure that the guilty are punished.
=>Now Mudra loans worth over 13 lakh crore rupees have been given to the poor and middle class, for creating self-employment opportunities.

Pic courtesy:PWi