After much delay, and over a year and half after it began a pilot, the India Post Payments Bank (India Post PB) has finally formally commenced operations in 650 branches and 3,250 access points across the country.

Leveraging the postal services ecosystem

The government backed entity’s primary focus is on delivering financial services to rural areas by leveraging its massive network of post office branches, which it will link to the India Post PB system. The government said that it will connect all 15.5 million post offices in the country to the India Post PB system by December this year. It will also deploy postal services staff – around 300,000 postmen for banking services at homes. The payments bank also has a provision under which, whenever a deposit in an account exceeds Rs 1 lakh, it will be transferred to a Post Office Saving Banks (POSB), according to reports. It has received permission to link around 17 crore POSB accounts.

The payments bank also got a boost last week when the Union Cabinet increased its budget by 80% or Rs 635 crore to Rs 1,435 crore. Of this, while Rs 400 crore has been allocated towards technology related costs, and Rs 235 crore was allocated to human resources.

What Payments Banks can and cannot do

India Post PB has also tied up with Punjab National Bank and Bajaj Allianz Life Insurance to offer loans and insurances products. It is also in talks with the State Bank of India (SBI) to provide loans and mutual funds services.

These tie-ups are necessary for Payments Banks because they’re not allowed to offer loans, take NRI deposits, set up non-banking-financial businesses or issue credit cards.

According to the Reserve Bank of India norms, payments banks can accept deposits up to Rs 1 lakh per account from individuals and small businesses and issue debit/ATM cards.

India Post PB – Timeline

  • The Union government had announced that it was considering the idea of setting up the (payments) bank, and applied, got a licence from the RBI.
  • The Union Cabinet decided to form the India Post Payments Bankin June 2016.
  • IPPB launches pilot operations in Raipur and Ranchi, in January 2017 with a steep target of 1.55 lakh outletsat post offices and 650 payments bank branches at District Headquarters Post Offices by September 2017.
  • IPPB appoints Suresh Sethi as its MD and CEO in October 2017.
  • The launch was delayed, as it could not sign up the system integrator (SI) within the schedule timeline. IPPB was now scheduled to begin operations by April 2018.
  • The launch was further delayed as it was then announced that it will commence operations on August 21. This was then deferred to September 1.

Competition in the Payments Bank space

IPPB will now compete with Jio Payments Bank, Airtel Payments Bank Ltd, Paytm Payments Bank Ltd, Aditya Birla Idea Payments Bank Ltd and Fino Payments Bank Ltd. The other applicants like Vodafone m-Pesa Ltd and National Securities Depository Ltd have licenses but are yet to start operations. It has also been reported earlier that Infibeam is set to enter to begin operations as a Payments bank. It is important to know in this context that the central bank has recently bared Fino and Paytm payments banks from adding new customers. While Paytm was barred from enrolling new users owing to its adherence to know-your-customer (KYC) norms, RBI penalized Fino after noticing some customers of have deposited amounts exceeding Rs 1 lakh in their accounts.