India Post Payments Bank struggling to survive with very little business

The Payments Bank concept appears to be a non-starter, including the government-owned India Post Payments Bank, which is reportedly struggling to survive with little business being done.

Of the 11 entities that obtained the licence to operate payments bank, 5 have opted out, according to a report.

An idea floated by former RBI Governor Raghuram Rajan, the Prime Minister himself had inaugurated the India Post Payments Bank . However, after having opened 650 branches and created 3250 access points, the IPPB seems to be in deep trouble unable to even bear the burden of salaries to its employees.

There are limitations to operation of a payments bank. One main drawback is it cannot accept deposits beyond Rs 1 lakh. It cannot offer any loans either. Except for the benefit that the banking facility can be taken to the inaccessible areas of the country thanks to the post office network, the model offered no attraction as a business enterprise. More importantly, the expenses in setting up the infrastructure and providing the network and technology alone are said to ha e cost more than Rs 1,000 crore. There is no corresponding income for the IPPB against this kind of an investment and a regular outflow on account of salaries which could be around Rs 250 crore.

The only way out now for India Post Payments Bank appears to be to convert itself into a small finance bank. According to reports, this is precisely what IPPB is doing now and it has already applied for a small bank licence and is hoping to receive the regulator’s nod early next year.

Once that happens, India Post’s banking venture can accept deposits beyond Rs 1 lakh and also give out loans. The same concept of reaching banking services to the remote villages and helping micro and small enterprises with funding etc. can help the organization and remain relevant.