India Post can start payment bank, but must apply afresh

India Post, the world’s largest postal network, can qualify for a new category of banks called “payment banks”, but will have to apply afresh to obtain a licence. Guidelines for payment banks were recently released by the Reserve Bank of India.

“They (India Post) will have to apply again to get a licence under the new classification,” a finance ministry official told Deccan Herald.

The official also said that the second batch of banking licences will be issued after sometime.

India Post had applied for a regular banking license last year along with 24 other entities. But in April this year, the Reserve Bank of India decided to issue only two new regular banking licenses to IDFC and microfinance house Bandhan Financial Services. At that time, it said it would discuss India Post’s application further with the government.

A payment bank will prima facie operate like any other bank and offer payment, savings and remittance services but will not offer loans.

The basic idea of a payment bank was first mooted by the Nachiket Mor Committee early this year which later got a stamp of approval from Reserve Bank of India (RBI) Governor Raghuram Rajan.

The primary objective of setting up such banks is to extend financial inclusion to the unbanked population, mostly in the rural areas.

Payment banks will mainly extend their services to migrant labourers, low income households and small businesses which are concentrated in the unorganised sector.