Financial inclusion programme received a shot in the arm when India Post Payments Bank , precisely called IPPB, was launched a few days back by the Prime Minister Narendra Modi. While riding on the vast network of the postal department , this payments bank would be providing limited financial services to the people.
Notably, IPPB has emerged as the largest payments bank in the country with 650 branches and 3,250 access points, which basically is the network of the postal department across the country. Obstacles in getting people from the outskirts of the formal economy into the banking fold have not vanished. They still remain visible despite efforts of the government to broaden financial inclusion by introducing a mega inclusion programme through the Prime Minister’s Jan Dhan Yojana (PMJDY). This Yojana swept population across the country in crores into the fold of formal banking system, there are still millions who do not have bank accounts.
Several studies have pointed out that a large chunk of population living in remote areas is illiterate and lack connectivity to reach places. Even as bank branches exist in rural areas, their network is not so strong to lure common people to reach to them frequently. The bank branches are far in-between, making it difficult for the people to reach them. After making people to open basic bank accounts through PMJDY, which was almost mandatory for them as government subsidies are routed to the beneficiaries through bank account only, it was demonetization which integrated the formal and informal economies and in absence of cash, forced the people to adopt digital mode of financial transactions.
Precisely, e-payment portals emerged on the financial landscape to offer electronic services of funds transfer. However, the digital transactions primarily remained concentrated in urban areas, and in rural parts of the country, the people suffered as they were yet to be connected to the banks. According to some statistics, almost 40% of the rural population were without bank accounts when demonetization took place.
In rural pockets, especially in far-flung locations, transfer of money is the basic financial activity where people make payments for the goods or the services they avail. Most of the funds transfer activity is done in informal way. Even as some segment are having PMJDY accounts, the cumbersome connectivity for reaching the bank branches and spending time to avail the services at the branch discourages them to be formal in financial transactions. So here lies the opportunity for the financial institutions to offer their financial solutions at their doorsteps, especially to facilitate the money transfers. And payments banks are best suited to provide a doorstep solution to bring these domestic remittances into the formal banking fold.
Let me borrow some facts which state that “there are 120 million migrant workers in India, and more than 80% live in the inadequately connected rural areas. Additionally, migrants who hail from villages but work in towns and cities make 80% of the country’s domestic remittances.”
National Remote Payments Survey by National Council of Applied Economic Research, “domestic remittance in India is valued at more than INR 900 billion per year, including non-traditional modes of transfer. Rural India’s contribution is over INR 700 billion per year. Of the INR 700 billion, traditional channels comprise a mere 40%, or INR 300 billion. The rest of the remittance happens through non-traditional remittance modes.”
Pertinently, funds transfer through informal channels carries high risk and this risk can be mitigated if payments banks join the traditional remittance avenues like payments banks. Notably, a payments bank is a differentiated bank with the specific objective of catering to the unbanked and under-banked populations. It operates on a small scale and carries out most banking operations but cannot give loans in any form. According to a World Bank report, India is home to 21% of the world’s unbanked adults. Payments banks aim to service these customers, especially migrant workers and those from lower income households, as well as bring them into the formal financial system. It also has the added benefit of secured, technology-driven transactions.
Now India Post Payments Bank (IPPB) is the largest networked payments bank, doorstep banking service through an army of almost 3 lakh postmen and ‘Grameen Dak Sewaks’ would be one of its most distinct features to watch. Its doorstep banking facility includes account opening; cash deposits/withdrawals; money transfers; recharge and bill payments etc.
In short, expanding banking network through payments banks is a step to redefine banking as the move is seen as one more step towards achieving total financial inclusion in the country. If all goes well with the plan, the payments banks would be game changer on the financial landscape front. It would not only bring unbaked population into the fold of formal financial system, but would also promote the concept of cashless economy. Precisely, it would be an impetus to the digital payment transactions.
(The views are of the author and not the institution he works for)
sajjadbazaz@greaterkashmir.com