India Post to set up a bank

In a dramatic attempt to wipe out the Rs 1,000 crore deficit that India Post currently runs, it has started work to set up a bank. Tentatively called the Post Bank of India, sources say it will start operating with 30 branches towards the end of this year – next year on the outside.

During the course of the 11th five year plan, the idea is to open 1,500 branches across the country. In many ways, the move mirrors a transformation that was engineered by the Italian postal service.

After years of mounting losses broke its back, Poste Italiana started using its network to run everything, from a bank to selling vacuum cleaners. The gamble paid off and CEO Massimo Sarmi is now spoken of in revered tones.

But for India Post, the proposal is at a preliminary stage. ” It will require lots of permissions starting with the Postal Services Board, RBI, the finance ministry and the cabinet before operations begin,” says Jyotsna Diesh, chairman, Postal Services Board . But sources close to the development say postal department is proposing a capital investment of Rs 1,000 crore for the bank. It will be set up as a subsidiary with the postal department holding a 51% stake in it.

It also intends to rope in major public sector banks like the State Bank of India to pick up a 25% stake in the new venture . Of the remaining equity, 5% will be offered to employees of India Post and the rest will be offered to the public.

For the department, the idea isn’t entirely new. In fact, it has been toying with the proposal for a while now as part of a series of initiatives to wipe out its deficit. This includes setting up postal finance marts that will sell various finance and insurance products to its customers.

With a network of over 1.55 lakh post offices, the department already provides various financial services including a post office savings bank (POSB), postal life insurance, pension payments and money transfer services.

Under the POSB, the department already handles Rs 3,75,000 crore worth of savings bank account deposits across the country from nearly 18 crore customers.

As for Poste Italiane, in 1987 the company was a tribute to sloth with losses in the region of USD 441 million. Right now, it is estimated to be worth USD 13 billion and is readying itself for privatisation. Over 15% of its revenues come from services that it didn’t think itself capable of delivering as recently as three years ago. Maybe, there is a lesson in it for India Post.

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