India Post Payments Bank

Why in news?

India Post Payments Bank (IPPB) was recently launched by the Prime Minister.

What is IPPB?

• India Post Payments Bank (IPPB) is a financial service provider that will operate under the country’s postal department.
• The government-owned payments bank will be able to accept deposits of up to Rs. 1 lakh from customers.
• But they do not have the rights to use these funds to advance risky loans at higher interest rates.

What are the features?

• Accounts - India Post Payments Bank (IPPB) offers three types of savings accounts—regular, digital and basic.
• A digital savings account can be opened through the IPPB mobile app.
• However, it is valid only till 12 months.
• Within this, it has to be converted into a regular savings account by providing biometric data to the postman.
• A regular and basic account can be opened either through the post office or the postman.
• Balances - All three accounts are zero-balance accounts, with no minimum balance rules.
• However, RBI has directed all payments bank account holders to hold not more than Rs 1 lakh in any account at a given point of time.
• So the moment an IPPB account crosses Rs 1 lakh limit, the transaction will be rejected automatically.
• To handle this, IPPB suggests linking a post office savings account with the IPPB account.
• So, any balance in excess of Rs 1 lakh will be transferred to the post office account.
• Interest rate - All IPPB accounts attract an interest rate of 4% per annum.
• Calculated on the daily closing balance, the interest rate is paid quarterly.
• Deposit & withdrawal - In regular and digital savings accounts, one can withdraw or deposit any number of times.
• In case of a basic savings account, there is a restriction of 4 cash withdrawals monthly.
• For cash deposits and withdrawals, one can approach the nearest post office where the IPPB service is available.
• IPPB accounts do not come with an ATM card and so one cannot withdraw cash from ATMs.
• Doorstep banking - Consumers can also call the postman or Grameen Dak Sevaks (GDS) home and make transactions.
• This is done using the QR card that is received with the IPPB account.
• Doorstep banking from IPPB comes at a cost of Rs 25 for cash transactions and Rs 15 for digital transactions.

What is the significance of IPPB?

• The primary rationale is to help in the goal of achieving financial inclusion.
• India's age-old postal department has a wide network of branches across India.
• All the 1,55,000 post offices in the country are expected to be linked to the IPPB system soon.
• IPPB can thus offer savings, remittance, and payments services to the rural and unorganised sectors.
• IPPB's digital services are expected to make financial services more accessible even from remote locations.
• There is also a hope that the payments bank idea will help reinvigorate the postal system.

What are the challenges?

• A key challenge is if it can manage to earn the profits required to survive as a standalone business entity.
• Besides, there are severe restrictions imposed by the RBI on how payments banks can employ their funds.
• The first wave of new payments banks that commenced business last year (Airtel, Paytm and Fino) have not made any significant changes.
• Banks have traditionally stayed away from pure deposit banking, unless customers have been willing to pay for these services.
• The IPPB promises to pay an interest rate of 4% to its savings account customers.
• To generate revenues, it plans to charge fees on money transfers and other financial services.
• It also plans to invest idle customer deposits in safe government securities in order to earn interest.
• However, if this will be sufficient to cover interest and operational costs or not remains uncertain.
• Besides, the IPPB is likely to face stiff competition from private companies.
• With increasing competition, the IPPB’s revenues and margins are also likely to come under pressure.
• Despite these, if it succeeds, the new payments bank could usher in a new era of rapid financial inclusion across rural India.

Source: Livemint, The Hindu