Payments banks can pose challenge to traditional banks due to lower cost: FM Jaitley

Jaitley said that about 650 India Post Payments Bank branches will be opened by September this year and that will have a multiplier impact as far as banking in India is concerned.

New Delhi: Payment banks can pose challenge to traditional banks due to lower cost, Finance Minister Arun Jaitley said on Monday.

Arun Jaitley and Minister of Communications Manoj Sinha today launched the operations of the India Post Payments Bank (IPPB) here as two pilot branches at Raipur and Ranchi through video conferencing.

Jaitley said that about 650 IPPB branches will be opened by September this year and that will have a multiplier impact as far as banking in India is concerned. He said with IPPB, banking at the doorstep will no longer remain a mere slogan, but will become a reality due to huge postal network in the country.

He said that financial Inclusion is critical for the socio-economic development of the country, but there are significant gaps in this area and a large proportion of country’s population remain unbanked or underbanked. IPPB will effectively leverage the ubiquitous post office network with its pan-India physical presence, long experience in cash handling and savings mobilization, backed by the ongoing project of IT-enablement, to bridge this gap in Financial Inclusion.

In his address, Manoj Sinha has commended the hard work done by the Department of Posts in setting up the India Post Payments Bank and hoped that both organisations will work in tandem to take the benefits of government schemes and financial services that are not easily available in rural areas to customers across the country and to the marginalized population in urban and rural areas alike. He said, the objective of IPPB will be public service rather than promoting commercial interests.

India Post had on January 28 received payments bank licence from the Reserve Bank of India to start rollout of banking operations commercially under the permit.

India Post Payments Bank is the third entity to receive payments bank permit after Bharti Airtel and Paytm.

As mandated by the RBI, the India Post Payments Bank (IPPB) would focus on providing basic financial services such as all kinds of payments; including social security payments, utility bill payments, person to person remittances (both domestic and cross-border), current and savings accounts up to a balance of Rs 1 lac, distribution of insurance, mutual funds, pension products and acting as business correspondent to other banks for credit products especially in rural areas and among the underserved segments of the society.

Set up us a 100% Government of India owned Public Limited Company under the Department of Posts, it will open around 650 branches in district HQ locations. All 1.55 lacs post offices including the 1.39 lac of the rural post offices will be mapped to the IPPB branch at the district headquarter and function as access points for IPPB. IPPB will usher in state of the art internet and mobile banking platforms, digital wallets and use innovative and emerging technologies to catalyse the shift from a cash dominant to a less cash economy.

In 2015, RBI had granted ‘in-principle’ approval to 11 entities, including Department of Posts, to set up payments banks and proposed to give such licences ‘on tap’ basis in future.

However, Tech Mahindra, a consortium of Sun Pharmaceutical Industries Ltd promoter Dilip Shanghvi, IDFC Bank Ltd and Telenor Financial Services and Cholamandalam Investment and Finance Co. backed have dropped their plan to roll out payments bank.

Out of eight companies in fray - Airtel has launched its commercial operation across India with an investment of Rs 3,000 crore offering interest rate of 7.25 per cent on deposits, free money transfer from Airtel to Airtel numbers within Airtel Bank, money transfer to any bank account in the country.

Paytm, promoted by Vijay Shekhar Sharma and backed by Chinese e-commerce major Alibaba, plans to roll out payments bank within initial investment of about Rs 400 crore.

Others are — Aditya Birla Nuvo, Fino PayTech, National Securities Depository, Reliance Industries Ltd nd Vodafone m-pesa.

AP Singh has been appointed as interim MD and CEO of the India Post Payment Bank. He was Joint Secretary in the Department of Disinvestment and one of the member of founding team that launched Aadhaar.