Financial Inclusion - Mastercard Case Study - Ajay Banga

India Post | Financial Inclusion Initiative

MVL Manikantan | Saksham Y| Vibhu G| Aarushi A | Chaitanya K| Kshitij W

Synopsis

India Post Payments Bank (IPPB), which will be managed by India Post, will have 100% Government of India (GOI) equity.

India Post has a network of 155,015 branches, of which almost 139,144 are in India’s rural hinterland. The aim for IPPB is to target financially excluded customers such as migrant workers, low-income households and tiny businesses. However, the catch is, IPPB will not lend money. This will, thus, shield them from the risks that conventional banks are exposed to.

IPPB will primarily have a huge offline presence to complement its online one, for which the department of posts has already identified a core banking solution (the software that runs banks). The payments bank will begin with Rs.400 crore equity capital and Rs.400 crore as grant from the government.

The stakeholders:[pic 1]

Pointers:

According to the mandate of the government and Reserve Bank of India, the expectations of the payment banks is to target India’s migrant labourers, low-income households and small businesses, offering savings accounts and remittance services with a low transaction cost. They hope payments banks will enable poorer citizens who transact only in cash to take their first step into formal banking. It could be uneconomical for traditional banks to open branches in every village but the mobile phones coverage is a promising low-cost platform for quickly taking basic banking services to every rural citizen. The innovation is also expected to accelerate India’s journey into a cashless economy.

The biggest advantage for IPPB (India Post) is the last mile connectivity, and the trust the khaki-clad postman has among the rural population of India.

Currently, the number of rural bank branches is 31,727. This is 39.7% of the total number of bank branches in the country. The number of no-frill accounts is 28.23 million. There are only 54 savings accounts for every 100 persons in rural areas and only 26% of rural citizens with an annual income of less than Rs. 50000 have a bank account. In the same income bracket, only 13% farmers have ever availed of bank loans while 54% have used non-institutional and other forms of lending. Thus, there is sufficient need for extending financial services to the rural areas.

Operation Plan:

Given the stakeholders involved, and the unparalleled advantage the government has in terms of infrastructure, the project will be fully government involved.

The main aim of this project is not to make profit, but to empower the citizens on the country.

The objective of this project will be to take the Jan Dan Yojana a notch higher, 22 crore accounts have been opened yet. But the potential is to rope in more citizens, empower them with inexpensive loans specially to promote agriculture which stands to falter in future development.