Post Office may join payment clearance system in India

One of the oldest deposit taking institutions — the Post Office — may well get to provide seamless fund transfer, with an RBI panel recommending that the Post Office be linked to the clearing system and the National Electronic Fund Transfer (NEFT). The panel has also sought to keep smaller banks with a net worth of less than Rs 50 crore out of the NEFT.

Section 49A of Banking Regulation Act empowers the Centre to notify institutions to accept deposits withdrawable by cheques. Post Office Savings Bank falls under such specific notification issued by the Centre. “Such notified institutions are providing chequeable accounts to their constituents.

In order to facilitate better customer service, such notified institutions should also have access to the clearing system,” said the report on ‘Working Group on Preparing Guidelines for Access to Payment Systems’. At present, banks have an advantage over the Post Office Savings Bank since they can provide fund-transfer facilities to customers. Those with core-banking solutions can extend online fund-transfer facility to their customers through internet banking.

At present, the Post Office is in the process of computerising and networking head post offices. By the end of the year, the Postal Department expects to network 650 of head post offices. Once the various locations are networked and the Post Office itself is plugged into the NEFT system, the POSB (Post Office Savings Bank) would be in a position to offer fund-transfer services similar to banks.

The report added that the NEFT membership might continue to be linked with the real-time gross settlement (RTGS) system. “The list of NEFT members would be a sub-set of the list of RTGS members. NEFT membership to POSB would require setting up of a nation-wide remittance system which may include the branches POSB. Non-bank entities (other than POSB) will not be a part of the NEFT system,” the report said.

To ensure that only financially-strong entities participate in the clearing house, the panel has recommended eligibility criteria for clearing house members. These include capital adequacy ratio of 9%, non-performing assets below 9%, no defaults in maintenance of cash reserve ratio and statutory liquidity ratio and a two-year track record of profits.

The report also said that the entities, which are currently members of clearing house at MICR centres, but ineligible to be members as per the proposed access criteria, would have to conform to the prescribed norms within one year, failing which membership would be downgraded from member to sub-member. “Such banks should, however, be barred with immediate effect, (subject to the minimum time required for alternate arrangements), from sponsoring any other entity as a sub-member,” it added.