gfiles Magazine October Issue 2011

CHANGING SCENE

postal service

 

Stamping a new legacy

India’s huge postal network is going to turn into a banking institution

 

 

by RAJENDRA BAJPAI

 

INDIA has a postal system more than two centuries old and it once had the enviable record of delivering letters and parcels to virtually every nook and corner of the world. Over decades it also acquired the reputation of delivering cash – money orders – throughout the country. No other country has such a formidable postal network. But its full potential has never been utilized – with the result that the Department of Posts and Telegraph has degenerated into a lossmaking entity.

 

However, the government is now considering converting the postal network into a banking institution with a licence from the Reserve Bank of India. Poor farmers who make some money during the harvesting season will no longer have to hide their few hundred rupees in a sack of grain in their thatched huts. There will be a post office close to the village for them to open a savings account and deposit the money there.

 

There are nearly 155,000 post offices in the country and they employ 5.5 million people which means the postal department already has the kind of basic infrastructure that a bank could take years, perhaps decades, to put into place. Compare this with the State Bank of India’s 10,000 branches and 5,500 affiliates. SBI’s journey from a single, standalone Bank of Calcutta in 1806 is not very different from that of the postal network. In the year ending last March, the bank made a net profit of more than Rs 8,000 crore.

 

India’s first post office was opened in 1688 but it was reorganized and opened to the public in 1744 by Warren Hastings, Governor General of Bengal. Each post office in the country serves an area of about 22 sq km and approximately 6,500 people.

 

 

India Post could be this decade’s greatest success story. It could emerge as a monolith that could dwarf most government departments as well as many corporate giants.

 

The earnings of India Post, as it is now known, are not readily available but it makes annual losses of Rs 1,500 crore. In part, this may be attributed to the thousands of courier services that have mushroomed across the country. But they were principally filling the space vacated by the increasingly inefficient postal department. Even in the mid-19^th century, people were confident mail sent by them would quickly and efficiently reach the addressee.

 

Postal departments in other countries also languished but they bounced back in France, Germany and Singapore. The first post office in Singapore was opened in 1877 but it did not get into the banking sector until the early 1970s. It was so successful that Post Office Savings Bank or PosBank had nearly one million customers or half the population of Singapore by 1976 and a deposit base of S$1 billion. Within a decade, the deposits rose 10-fold to S$10 billion. In the 1990s it was acquired by the DBS or Development Bank of Singapore. India Post has the potential to beat every bank in the country on the basis of deposits and loans. To begin with, it is already handling money transactions by way of savings accounts and various government financial certificates. Banking by itself is not new to the postal department and it plans to buy about 800 ATMs by next March, as soon as it gets a licence.

 

An additional advantage is the location in rural areas. It can become a micro lender. Currently, this space is filled by private companies and NGOs. But all the micro finance companies put together do not have the infrastructure of the Department of Posts and Telegraph. Its turnaround from a loss-making to a profit-making government department can be swift and meteoric. But the dangers are equally apparent and alarming. Postal employees will largely be dealing with small farmers and village businessmen, many of whom are illiterate and will be dependent upon postal employees for guidance.

 

The possibilities for corruption are frightening. The postal department’s main money-spinner will be micro finance which will mean lending amounts ranging from a few hundred to a few thousand rupees, mainly during the sowing season. The local dakia or postman will have extraordinary powers to lend and accept deposits. It will not be surprising if some of them demand commissions before lending money to farmers. 

 

Significantly, some micro finance companies lend money only to women in villages because they have an enviable record in returning the loans.

 

India Post could be this decade’s greatest success story. It could emerge as a monolith that could dwarf most government departments as well as many corporate giants. At the same time, the pitfalls and frightening consequences of its failure cannot be minimized. g

 

 

(The writer is a former Reuters and Bloomberg correspondent)