The department of posts (DoP) will soon move a cabinet note on approval for an investment of Rs 650 crore for its proposed payments bank venture, for which it had applied last month to the Reserve Bank of India. And, for an independent entity to do so, with a new board of directors. The note will be circulated in a month, a senior DoP official told Business Standard.

Initially, the plan is to have 650 main branches where the department has head or bigger post offices. Subsequently, 25,000 ‘spoke’ branches to be set up, with the other 130,000 POs to act as business correspondents for the payments bank.

“The new entity will be financially and administratively independent of DoP,” the official added. The latter's existing infrastructure will be used by the new unit as well but after paying user charges.

The department might also bring in a new vendor for the core banking system.

In the Budget speech this year, Minister Arun Jaitley had said the government was committed to increase the access of people to the formal financial system. “The government proposes to utilise the vast postal network, with nearly 154,000 points of presence spread across the villages of the country. I hope that the postal department will make its proposed payments bank venture successful, so that it contributes further to the Pradhan Mantri Jan Dhan Yojana.”



According to the detailed project report by Ernst & Young for DoP, the payments bank will be able to break-even in five years, once operations start. And, DoP will earn revenue of Rs 250 crore in the first year from the new banking entity, expected to go up to Rs 600-700 crore annually in the five years, the official said. Money remittance is a big segment and 55-60 per cent of these happen in the unorganised sector. DoP is looking to further strengthen its foothold in this space.

The remittances market is estimated to be Rs 2 lakh-crore, half of which is in the informal sector and not being reflected in official numbers (on remittances through India Post, mobile wallets, etc) because of lack of clarity on the definition of migrants.

Apart from India Post, other applicants for a payments bank licence inclujde Bharti Airtel, Vodafone India, Idea Cellular, Uninor and Reliance Industries. The proposed — unlike full-fledged ones which make money on float by arbitrage, as they lend money at a higher interest than what they pay depositors and don't charge on transaction services — will charge for services, primarily cash-outs and cash-ins.

The proposed entity can deposit the amount in government securities and earn annual interest at 8-8.5 per cent, while giving customers three to four per cent on the amounts.

However, payments banks, unlike scheduled banks, cannot use the cash to give loans.

DoP is in the process of revamping itself. A task force for revamp of the department has been set up under former Cabinet secretary T S R Subramanian, which has proposed various measures.

DoP plans to create a holding company that will eventually have five independent entities under it. To begin with, it will have two independent companies — one each for banking and insurance. Also in the pipeline is an independent company for e-commerce services. Financial feasibility studies for this will begin from October and the new company will be operationalised in 2016.

By this July, the e-commerce vertical will be strengthened in terms of resources and infrastructure, with a focus on rural artisans/businesses.

Also, a secure warehousing and parcel processing hub, and a dedicated transmission and nodal or mechanised delivery system will have been readied. The department already has tie-ups with top e-tailers such as Flipkart, Snapdeal, Amazon, Myntra, Naaptol and eBay, besides Japan Post.