Introduction:

• Prime Minister Narendra Modi launched the India Post Payments Bank (IPPB)
• IPPB will act as a financial service provider that will operate under the country’s age-old postal department.
• The new India Post Payments Bank can hasten financial inclusion.

Benefits:

• The primary rationale behind the launch of IPPB is to help in the government’s goal of achieving financial inclusion, especially to the rural and unorganised sectors of the economy. (In short it will help in bringing the unbanked into the banking system).
• It will also help reinvigorate the postal system, which has a wide network of branches across India. (Holders of postal savings accounts are worth over ?85,000 crore.)
• IPPB will also have a digital platform that is expected to make financial services more accessible even from remote locations.
• IIPB will also focus on providing basic payments services such as social security payments, utility bill payments and money transfers.
• It will also provide access to third-party financial services such as mutual funds, insurance, pension, and loan products.

Do you know?

• IPPB has been set up as a 100% Government of India owned Public Limited Company under the Department of Posts.
• It will initially have 650 branches and 3,250 access points in post offices across the country.

What are Payment Banks?

Payments Banks are banks with the following features:

• They will provide a limited range of products such as acceptance of demand deposits and remittances of funds.
• They will not perform the function of lending money in the form of loans.
• These banks will have a wide network of access points particularly in remote areas.
• They will supplement their own network with business correspondents and even depend on network provided by others.
• Technology will be extensively used to add value.

Important Features of IPPB:

• IPPB is offering 4% interest to its savings account customers.
• IPPB is currently not offering its customers an ATM or debit card.
• IPPB account holders will be issued a QR Card with a unique QR code. The QR card in an ATM since it is not an ATM card.
• The QR code will be used to identify India Post Payments Bank account holders through smartphones or micro-ATMs. Further, after verification using biometric data, the customer is paid in cash.
• According to RBI guidelines, one can hold a maximum of Rs 1 lakh in a savings account of a payments bank.
• Funds exceeding Rs 1 lakh in the regular savings account can be transferred to the account holder’s linked Post Office Savings Account (POSA).
• There is no cap on the number of withdrawals in a month. You can make unlimited deposits in a month, subject to the Rs 1 lakh limit.
• Cheque book facility is not available.
• There are no cash deposit or withdrawal charges. But for doorstep banking services, India Post Payments Bank will charge Rs 15 for digital transactions and Rs 25 for cash-based transactions.
• Account holders can also use the mobile banking app for checking balance, statement, bill payments and for online transfers.

How India Post Payments Bank savings account differs from post office savings account?

1. Post Office Savings Account (POSA) offer ATM facility.
2. Cheque facility is available. (Min. balance 500rs)
3. For non-cheque facility account, the minimum balance of Rs 50 has to be maintained.
4. POSA offers 4% interest to account holders.
5. At least one transaction of deposit or withdrawal in three financial years is necessary to keep the POSA active.

Key challenges:

• Whether it can manage to earn the profits required to survive as a standalone business entity, given the severe restrictions imposed by the Reserve Bank of India on how payments banks in general can employ their funds.
• The first wave of new payments banks that commenced business last year — Airtel, Paytm and Fino — have not exactly set the market on fire.
• IPPB plans to charge nominal fees on money transfers and other financial services while investing idle customer deposits in safe government securities in order to earn interest. Whether this will be sufficient to cover interest and operational costs remains to be seen.
• IPPB is also likely to face stiff competition from private companies, which are generally more nimble in adapting to business realities and far more customer-friendly compared to the government-owned behemoths.

Areas of Caution

Two areas where a cautious approach needs to be adopted are the understanding of the business model as well as the objective of financial inclusion that they seek to achieve.

However, if it succeeds, the new payments bank could usher in a new era of rapid financial inclusion across rural India.