India’s newest financial institution is set to be the country’s biggest bank

• India’s newest payments bank was launched on 1 September.
• The India Post Payments Bank will use the infrastructure and employees already within the umbrella of the postal network to implement this initiative.
  
• The bank aims to promote financial inclusion by integrating people currently employed in India’s informal economy.

India’s new public-sector company, the India Post Payments Bank (IPPB) is set to be the next biggest bank in India with financial inclusion at the helm. It terms of its network size, it’s already the largest payments bank in the country with a network that extends into the rural corners of the country.

The post office already has 34 million savings accounts that will now be able to avail digital banking services once they link their accounts to the IPPB.

That being said, it’s important to remember that payments banks are different from commercial banks in a number of ways. And, while the Minister of State for Communications, Major Sinha, claims that this will launch the ‘second wave of financial inclusion’, the first wave of the Pradhan Mantri Jan-Dhan Yojana is yet to be effectively implemented.

The largest banking network

The postal network in India is one of the most comprehensive. Using the post offices that are already in place and the postmen familiar with their routes, the IPPB can capitalise on the existing resources it has on hand.

Rather than having to employ and train a whole new workforce, the postal service already has postmen in place that can go door-to-door for customer on-boarding, answering account statement requests, coordinating third-party services and other tasks. Starting Monday, nearly 11,000 postmen have already started on the job across urban and rural areas.

And there’s not need to construct additional infrastructure either with post offices already established in far-flung corners of the country.

That being said, while the IPPB has the same functions as an ordinary bank, it can’t issue credit lines via loans or credit cards. But then again, there’s no minimum balance requirement either. And, herein the lie the biggest boon of the initiative.

The bank doesn’t rely on fines and loans to generate revenue, but on deposits and and transaction charges instead. It means that individuals can be a part of the initiative and have a bank account without necessarily needing a continuous flow of income, making the IPPB an affordable and accessible solution.

The impetus on financial inclusion

The underlying aim of launching the IPPB has been to promote financial inclusion. The smaller savings accounts and easy money transfers serve to empower migrant labourers and low-income households to integrate themselves with the formal economy. The crux of issue lies in the fact that 80% of India’s labour is currently employed in the informal sector.

While the Pradhan Mantri Jan Dhan Yojna had the same aim in mind, financial literacy was an obstacle that they were unable to overcome. The IPPB plans to overcome this obstacle by running a campaign around digital literacy. The QR card in place of debit card should enable financial transactions without having to remember complex passwords or pin-codes.

On the day of its launch the IPPB inaugurated 650 new branches and 3,250 access points co-located at post offices. In a phased manner, the government has plans of establishing 155,000 access points by the end of the year.

The IPPB can accept demand deposits of upto ₹100,000 and offer remittance services. The bank also facilitates mobile payments, net banking and debit cards.