RBI Looking To Turn Post Offices Into Banks

The proposed Post Bank could start as a payment bank, making use of post office outlets to raise deposits and make payments

Very soon you might be able to transfer money and enjoy other banking services from your local post office. Reserve Bank of India, nation’s central banking institution is looking for new ways to reach hundreds of millions of citizens who don’t possess a bank account.


India Post, the world’s largest postal network has over 150,000 post offices across the country. According to an estimate, nearly 90% of the post offices are in rural areas. Compare that to little over 15,000 branches that SBI has.

Reserve Bank of India is considering to make Post Office India’s first “payment bank”. It’s a new classification of bank which if comes into existence, will allow people to avail payments, savings and remittance services to customers. Though, it won’t facilitate loans.

“A payments bank, which will take deposits and offer payment and remittance services but be constrained to invest all its funds in safe instruments such as government securities, could be very synergistic with other existing services,” Mr. Rajan said in a talk on Tuesday in New Delhi. “For example, the proposed Post Bank could start as a payment bank, making use of post office outlets to raise deposits and make payments.”

Last year, India Post along with 24 other organizations applied for a regular banking license. In January, RBI proposed the creation of payment banks, but in its review last month, it didn’t accept India Post’s application. Though, it said that it would discuss India Post’s application with the government.

However, according to a report, India Post will have to apply afresh to the RBI under differential licence guidelines. Reserve Bank will issue the guidelines on a differential licence in next few months.

What’s the point?

As noted earlier, if Post Offices start providing banking services, thanks to its wide-reaching network – especially in the rural areas, more people – especially without bank accounts, will be able to use this service.

Second, it’s no secret that letter delivery business is dying. Hence this expansion of financial services is part of a strategic plan to save it. If accepted, this will roll in additional revenue streams.

The postal service is already providing small savings, pensions and handling payments of government cash subsidies. Ideally, it can learn the tricks and eventually turn into a full-fledged bank later.

Third, being a government institution, it automatically gains people trust.

Fourth, by having a competitor, this will force banks to bring better services and offers to lure in customers.

And ofcourse, Post Offices will have to undergo a massive upgrade, providing training to the employees, and possibly open more branches.

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