India Post Payments Bank will widen inclusive banking

One of the most effective ways to win elections is to give to people what they do not have. Politicians have in the past tried to give cash, mobile phones, laptops and even television sets to lure voters. But what if you can give them support for their livelihood? PM Modi has been focusing on providing banking facilities to India’s unbanked population ever since he came to power. The India Post initiative under which 650 payments banks were opened recently, mostly across rural India was the fourth such initiative that he has unleashed in four years.

A payments bank is not a retail bank which advances credit. Rather it is an easy payment enabler, much like Paytm or Airtel Bank or Idea Bank. Normally mobile wallets or payments banks do not have an elaborate physical presence. But the India Post Payments Bank (IPPB) having such a widespread footprint is going to be different. It has a much bigger dimension to it than a mobile wallet client base. It will be a handheld saving and transfer mechanism delivered to your doorstep and tutored by your friendly postman. Each person saving in IPPB will be issued a biometric authenticated QR code card which can be scanned and used for making payments or withdrawing money. So instead of receiving a money order from your kin in the city you can have the money transferred directly through IPPB. This can be delivered  at any location by the postman within a day or two, unlike a week or ten days in case of money orders. The payments banks will be one in each district and will have 1.3 lakh rural outlets and twenty thousand urban outlets.  

The IPPB will be targeting the small user,  the holder of the zero balance Jan Dhan account. This is unlike the post office savings account POSA which has predominantly been targeting the salaried account holder. And by doing so it will try to mop up small savings that rural chit funds have traditionally targeted. IPPB is a zero balance account with a maximum savings limit of Rs 1 lac. But in case the savings go to over Rs 1 lacs it will be automatically linked to POSA. IPPB has three savings schemes and will create a base for small savings and a steady interest income against those savings. This is a huge facility for the rural poor who have no regular income but  still save intermittently with the chit funds. It is a mammoth industry that made the fortunes of the Sahara group, the Peerless group and nearly 20,000 to 30,000 chit funds operating in the country.

Banking the unbanked

Fifty years ago when Indira Gandhi nationalised 14 private banks, one of the prime reasons was to spread banking across rural India. There were just around a thousand rural branches in the first twenty years of independence prior to nationalisation. After nationalisation rural banking and rural credit spread. In the next 10 years India saw 10,000 rural banks open. Both the White Revolution and the Green Revolution took off with the advent of rural credit across India. Indira Gandhi perhaps believed in banking the unbanked, and agriculture credit and rural prosperity started growing after bank nationalisation.

Banking the unbanked was, however, not a socialist dogma. It was a theory proposed first by the renowned management guru CK Prahalad in the 1980s, who wrote “Fortune at the Bottom of the Pyramid”. Prahalad said that if rural banks were opened across India and savings and credit facility offered to them, then the poor would be saving tens and thousands of crores which they pay as interest each year to moneylenders. In many cases a rural loan of Rs 1000 given by a money lender collects an interest of Rs 1000 every year. So if you cannot pay the interest, the loan amount would double each year and grow four times every two years. The reason for farmers suicide is usually not crop failures but the inability to repay the money lender (usually the village strongman).

After Indira Gandhi nobody bothered about rural banking. Following liberalization, it was the private banks which held sway where the  minimum balance was a whopping Rs 10,000. The high minimum balance was a loud no-entry sign for the poor and the middle class.

PM Modi’s introduction of the Jan Dhan Account in 2014 changed all that. Within a year 30 crore zero balance bank accounts were opened. That was the first step, but the accounts were empty. The next step was to channelise the subsidies to those accounts to start off a trickle flow of funds. The third step was the Mudra loan scheme were collateral-free small loans were given to the poor. Finance Minister Arun Jaitley in his 2018 budget speech stated that Rs 4.6 lakh crore has been sanctioned to 10.38 crore beneficiaries of which 50 per cent were backward class and 76 per cent were women. So the poor who had limited access to banking  before 2014, started getting small loans. The IPPB is another step in this direction that will mop up rural savings at the bottom of the pyramid and pay them interest, bringing them within the banking ambit. Such focused effort to empower the poor and rural voter could pay handsomely in the 2019 elections.

The author is a writer and columnist. Views are personal.