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India Post Payments Bank becomes small finance bank, will provide small loans

India Post Payments Bank
India Post Payments Bank

India Post Payments Bank will be converted into a small finance bank to enable small loans to individuals and SMEs, the Ministry of Communications said in a statement on July 31. The Department of Posts is also targeting 1 crore accounts for IPPB in 100 days.

Payments banks are not allowed to offer loans, take NRI deposits, set up non-banking-financial businesses or issue credit cards. Prior to this move, IPPB had joined hands with Punjab National Bank and Bajaj Allianz Life Insurance to offer loans and insurances products.

The decision was made at the annual Heads of Circles Conference held at Srinagar to adopted a 100 Days Action Plan and a five-year vision to make Department of Posts align with PM Modi’s “New India” initiative. Now, IPPB will partner with common service centres to provide services such as banking, remittance, insurance, DBT, bill and tax payments at the post offices.

What does IPPB do?

IPPB formally commenced operations in September 2018 in 650 branches and 3,250 access points across the country after a year-long pilot. It is focused on delivering financial services to rural areas by leveraging its massive network of post office branches, which it will were linked IPPB system. A week before the launch, the Union Cabinet increased its budget by 80% or Rs 635 crore to Rs 1,435 crore. Of this, Rs 400 crore was allocated for technology-related costs and Rs 235 crore was kept aside for human resources.

According to reports, the Reserve Bank of India states that the main aim of payment banks is to improve financial inclusion by offering small savings accounts, payments and remittance services to migrant labour workforce, low-income households, small businesses, unorganised sector entities and other users.

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In July this year, IPPB became a scheduled bank after it was included in the Second Schedule to the Reserve Bank of India Act, 1934. The inclusion allows IPPB to borrow money from the central bank. Currently, IPPB competes with some other players such as Jio Payments Bank, Airtel Payments Bank Ltd, Paytm Payments Bank Ltd, and Fino Payments Bank Ltd.

“IPPB has enabled approximately 200,000 doorstep banking service providers with micro-ATM devices (Smartphone and biometric device) to provide a full suite of banking services (including Cash Deposits/ Withdrawal, Account Opening, Money transfers, Bill Payments and DBT distribution) at the customer’s doorstep. Therefore, IPPB has not invested in physical ATMs,” Minister of Communications, Ravi Shankar Prashad replied during Lok Sabha session on June 26, 2019. He explained that IPPB has established links with all the interoperable payment and settlement systems including UPI, IMPS, NEFT etc. to allow digital transactions and thus has not issued debit cards.

He also added that, “IPPB is in early stages of discussion with various global & domestic institutions to enhance its product suite, as per the Payment Bank guidelines governing third party products”.

Other important decisions taken

Apart from the move to convert IPPB into finance bank, some of the other important decisions taken during the annual Heads of Circles Conference include:

  • Consolidation of the network of 13,352 Aadhaar enrollment and updation centres in post offices and introducing flexible timings for customer convenience.
  • Investing in 190 parcel hubs, 80 Nodal Delivery Centers and a pan-India road transport network to extend ecommerce to tier 2 and tier 3 towns and rural areas
  • Set up ‘Passport Sewa Kendras’ in all aspirational districts according to the MEA’s mandate.
  • Restructuring of the Postal Life Insurance and Rural Postal Life Insurance business of the Department into a fully regulated Strategic Business Unit (SBU) registered as a company as per the requirement of IRDA.

Apart from this, Prasad has also asked the Heads of Circles to “leverage technology to strengthen” Digital India by adopting artificial intelligence, IoT and cloud computing for offering citizen centric services. He also urged the department to tap the rising demand for e-commerce in rural and semi-urban India by fast-tracking the access of e-commerce participant.

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