Indian Economy - News & Discussion Oct 12 2013

Supratik · Post by **Supratik** » 20 Aug 2015 19:34

More on payment banks.

http://timesofindia.indiatimes.com/busi ... 549144.cms

RoyG · Post by **RoyG** » 20 Aug 2015 21:06

First, banks dont "issue money". I dont know if you know what issuing money is. The only "issuer of money", in the sense you seem to mean it, in any country is the central bank (RBI here).
Second, these licenses are being given for "payment banks". Do read up on what payment banks are all about. They represent a very narrow and small segment of what constitutes banking activities in normal commercial banks, ie, small money transfers and remittances.
Third, Reliance is in a JV with SBI for this venture. If anything, this will be a sort of "joint sector" company, or PPP!

Sure, I have said that they are currently limited in what they can do. Where is the issue?

It seems like you need to read up on modern banking and how it works. Every time you deposit money in the bank they hold some and loan some in the form of credit. Credit = money!

The RBI buys gov bonds and then the gov prints physical and in the form of public spending credit. So in a sense, it's a joint responsibility.

Now luckily for us, most of the banking in India is state owned and the family isn't broken so fiscal responsibility of the household is very much intact.

arshyam · Post by **arshyam** » 20 Aug 2015 21:42

It is a big deal. Why payment banks will change the banking game for you and me - R Jagannathan, FirstPost

The Butterfly Effect holds that a butterfly flapping its wings in some place can, in theory, cause a hurricane somewhere else weeks down the line. The term, coined by Edward Lorenz, came into vogue as weather forecasters saw that a small variation in initial atmospheric conditions can lead to completely unanticipated weather outcomes elsewhere.

Yesterday (19 August), Reserve Bank Governor Raghuram Rajan flapped his wings and set off what could turn out to be a revolutionary storm in the Indian banking system - a storm bigger than the one created when private banks were first given licences in the 1990s.

Eleven private parties were given licences to set up "payment banks" - banks which can do everything a regular bank can do - take deposits, pay bills, issue cheques and drafts, et al. The only thing they can't do is lend to you and me. Payment banks can only lend to the government and almost anybody with Rs 100 crore in his pocket can, in future, set up a payment bank, assuming they pass the RBI’s “fit and proper” norm (which basically means if you are not a crook, or someone who has cocked a snook at the regulator, you can get a licence). This means payment banks will theoretically be the safest of banks since they have only the government as borrower – and governments don’t default. In future, payment bank licences may be available on tap, and we could see even 50-100 such banks being set up. India will be fully banked over the next decade.

That payment banking is a big deal is evident from who’s got the initial set of licences – the big boys and billionaires are there. Among them: the Aditya Birla Group, Reliance Industries (majority owner of Network 18, which publishes Firstpost), the big telcos (Airtel, Vodafone), the National Securities Depository (which holds almost all of India’s stocks in demat form, and provides the backbone for a tax information network), PayTM (India’s biggest mobile wallet company), Tech Mahindra (one of the Top Five IT companies in India), and Sun Pharma’s Dilip Shanghvi. Billionaires wouldn’t be filling in forms at the RBI’s window if they didn’t think payment banking was the in thing, though they might prefer to become regular banks, if that were possible. Since the RBI does not want corporates in banking, they are going for the next big thing that’s available – payment bank licences.

The reasons why payment banking will revolutionise money movement are many. Consider the areas they will touch, and how their mere presence will impact everyone.

First, and foremost, payment banks will bridge the last mile (or last 10-20 miles) between bank branches and the remote customer living in a rural hamlet. Payment banks will essentially rely on technology to reach payment services to all customers, using mobiles as the vehicle of banking. Mobiles go even where humans don’t. Physical bank branches (or bankers or ATMs) will still be needed for some functions - opening an account, depositing cash, etc - but all day-to-day payments, including peer-to-peer payments) can be done remotely. The mobile phone will become the virtual ATM and small-payments cheque-book. In less than 10 years, every Indian will have a bank account. Payment banks are the key enablers.

Second, banking costs will come down due to intense competition driven by the expected proliferation of payment banks. Currently, we pay through our noses for banking services, whether it is above-limit ATM transactions, additional cheque-books, big money transfers, maintenance of minimum balances, or draft issuance fees. These costs will come down as payment banks start offering zero-balance accounts and low-cost services. Currently, efficient private banks like HDFC Bank, ICICI Bank and Axis Bank make huge profits from their low-cost current and savings bank accounts, but a big chunk of this will move to payment banks, who may offer higher savings bank rates of 5-7 percent. The HDFCs mint money since they only have to compete with slothful public sector banks. Now, they will have nimbler rivals to worry about. The customer will finally be Queen.

Third, the public sector banks are sitting ducks for bankruptcy and taxpayer bailouts if they do not change. Between then, efficient payment and private sector banks will take away their lucrative businesses and prized customers, as they will be both well capitalised and efficient. The government should privatise the weaker banks quickly if it is not to be stuck with feeding white elephants permanently. It can’t cope with one Air India; if it does not privatise, it will have several Air Indias on its hands. The weaker public sector banks are dead ducks.

Fourth, the arrival of payment banks - including India Post - will transform social welfare and subsidy schemes. Even if the Modi government does no other reform but this one, government subsidy payments to the poor - whether for LPG, kerosene or even food and fertiliser - can now be routed through regular and payment banks. India Post is already there in places where banks aren't there (with over 1.5 lakh post offices), and tomorrow Airtel and Vodafone and Idea (and Reliance Jio, when it enters mobile telephony later this year) will reach customers through mobile-enabled payment systems. The holy triad of Jan Dhan no-frills bank accounts, Aadhaar IDs and mobile banking will enable direct payments to the poor, eliminating fake recipients, ensuring cash in zero-balance accounts, etc. Inclusive banking and subsidy reforms are simply the biggest things to happen during the Modi government, even though the seeds for this were planted by earlier governments. The difference between State Bank and Airtel is simply this: both have over 200 million customers, but Airtel can go where State Bank cannot with a branch.

Fifth, mobile banking will create the conditions for cash-less banking. This means, over time, the mobile will perform the same role as credit and debit cards, obviating the need for too many cash payments. Even ATM expansion can now be slowed down in cities, and focused on distant villages or towns.

Sixth, we now have one additional tool to eliminate black money in large parts of the financial system. A government that wants to eliminate black money - which the Modi government says it wants to - can effectively ban cash transactions once a 95 percent mobile and Jan Dhan penetration rate is achieved. India is close to reaching a mobile user base of one billion, and Jan Dhan is said to have reached all households. The next target for Jan Dhan should be universal adult coverage through mobile, payment banking. It is achievable in five to 10 years, with some public and private investment in financial literacy education and empowerment of rural citizens, especially women.

Seventh, the government will be one of the biggest beneficiaries of payment banking, as payment banks will expand its access to cheap funds. Currently, banks are the major investors in government bonds. While this will remain so even with the entry of payment banks, the sheer impact of additional money coming into payment bank accounts which can only invest in short-term government bills of up to one year's maturity means short-term rates will come down, and the government can borrow more cheaply.

Eighth, bank depositors can expect to earn higher short-terms deposit rates from payment banks, and the old 4 percent savings bank norm will probably fade away.

After payment banks, the RBI will license “small banks”, which have to focus loans on small borrowers and not big corporates. Once this happens, non-bank finance companies will become "small banks" and make financial inclusion more complete from the small borrower's point of view.

Between them, payments banks and small banks will make Indian banking more competitive and more inclusive on both the assets and liabilities sides – that is, for both depositors and borrowers. The era of the consumer is finally at hand.

srin · Post by **srin** » 20 Aug 2015 23:00

The smaller PSBs better watch out. There is no reason for customers (except that 100K INR limit) for customers to choose them. If you need full banking, go to SBI or ICICI or HDFC. If you need no-frills, then go to these payment banks.

Looks like the era of milking CASA customers for free money (to be lent later to kingfisher etc) is over.

Rahul M · Post by **Rahul M** » 20 Aug 2015 23:06

this just might rejuvenate the desi postal system.

kmkraoind · Post by **kmkraoind** » 20 Aug 2015 23:53

http://dipp.nic.in/English/Publications ... ne2015.pdf

Its a PDF document on FDI investments in India from 2000 to 2015.

KJo · Post by **KJo** » 21 Aug 2015 01:21

Rahul M wrote:this just might rejuvenate the desi postal system.

I think postal systems are dying everywhere because of electronic means of communication. I don't know about the financial health in India but as you know, in the US it is under loss in billions. I am sure that in India it will soon get to the same as we progress and it will have to be supported as a loss making but essential service.

Rahul M · Post by **Rahul M** » 21 Aug 2015 01:36

that's all last decade's news. the plan to utilize the postal system as a conduit for financial services, including cash subsidies might change all that.

Theo_Fidel · Post by **Theo_Fidel** » 21 Aug 2015 02:19

Hnair was saying that even a simple ATM has operating cost ~ 1 Lakh/month.
Can this postal delivery system be cheaper? I think it is going to be tough to match that.
It would be better and cheaper to conduct transactions via ATM. No need to wait for postal guy and live at his/her marzi… ..24/7/365 access.
Longer term everything is being done on smart phone. Even in India this will happen.

A_Gupta · Post by **A_Gupta** » 21 Aug 2015 03:45

KJo wrote: I think postal systems are dying everywhere because of electronic means of communication. I don't know about the financial health in India but as you know, in the US it is under loss in billions.

The US Postal system is in financial trouble mainly because of politics in the US Congress that prevent it from doing anything, from raising prices, to restructuring. Congress also required it to deposit enough money to cover the pension obligations for the next 75 years within a 10 year time span - which makes no sense. It receives zero tax dollars for its operation, by the way.

Hari Seldon · Post by **Hari Seldon** » 21 Aug 2015 04:41

Well, if post-offices can play host to ATMs, giving the space out sans a rental in return for some postal-bank services being offered by the ATM owner, win-win for everybody I say.

Rural reach of post offices remains formidable even now. If basic banking functions can be transferred there, more power to them.

Am enthused with airtel getting the quasi-bank license. airtel money can spread wings now. How better (and cheaper) to spread banking and cashless payments and deposits than via mobile in a country like India? Can leapfrog the lack of formal financial infra, IMHO.

An airtel-postal dept tie-up could bring in further wonders. After which I can see the likes of insurers, farm implement vendors, FMCG majors and the like jumping into the act and trying to piggy back this channel to access the remote rural consumer, who knows...

RamaY · Post by **RamaY** » 21 Aug 2015 05:07

Theo_Fidel wrote:Hnair was saying that even a simple ATM has operating cost ~ 1 Lakh/month.
Can this postal delivery system be cheaper? I think it is going to be tough to match that.
It would be better and cheaper to conduct transactions via ATM. No need to wait for postal guy and live at his/her marzi… ..24/7/365 access.
Longer term everything is being done on smart phone. Even in India this will happen.

Sar,

You say operating a simple ATM costs Rs 1L/Month. I presume it includes cost of security person. You say postal bank is costlier and gives the solution of having simple ATMs. Do you see the fallacy?

At the end of the day India will need to have at least 1ATM in all Indian villages due to distances & reach. Why not club it with postal services where postal bank becomes a one stop shop of postal, ATM/Banking/Insurance/JDY/Social-Secuirity systems?

P.S: My friend helped define the banking policy for postal bank and a hindutvavadi forum member wrote the technology strategy. So I know what I am talking about.

disha · Post by **disha** » 21 Aug 2015 05:17

Just as predicted Onions are getting dearer. Further as predicted this is a short term issue. Of course Delhi billis will be paying through their nose for the Onion price and the AAPTards have woken up late to the problem it might cause.

And to rub salt in the wounds., GOI has floated an open tender for *only* 10000 tonnes of onions., which is a drop in the bucket. I think 1.2-1.4 Million tonnes a year.

http://www.business-standard.com/articl ... 043_1.html

Told ya., just based on the IMD report and progress of monsoon - the Onions are dear (short term) and pulses (lentils/legumes) will be dearer - long term.

However GOI is heading in the right direction. It is going to take some 2-3 years before things stabilize.

RoyG · Post by **RoyG** » 21 Aug 2015 05:21

Rahul M wrote:this just might rejuvenate the desi postal system.

Rahulji,

With internet penetration increasing, saving the postal system will be like saving Air India.

amit · Post by **amit** » 21 Aug 2015 05:33

I really like this payment bank move. With a little bit of tweaking, the payment banks can become a desi version of FinTech but on steroids. I say this because, as the First Post article says, these new banks will succeed only if they become heavy users of technology. A new revolution is taking place in the world of banking, even in developed markets. FinTech companies are reaching the small and marginal users especially in places like Africa and South east Asia. If I were to suggest anything, I would request the government to allow these banks to work in tandem with small banks to reach the marginalised (in the sense of having access to credit) micro businesses which account for a majority of employment in India.

Regarding the Postal System, in those countries that it has survived and even thrived, they have made a successful transition into becoming logistics and supply chain players with the delivery of mail being a secondary line of business. Deutsche Post which is a successor to Deutsche Bundespost is the world's largest courier company and we all know about it by the name of DHL. Singapore Post or SingPost has transformed itself into a top notch logistics company which works in tandem with e-commerce sites like Alibaba and Lazada.

When you consider the reach of the Indian postal system and its logistics network that gets millions of letters delivered that can be very easily tweaked for logistic delivery for, say, Flipcart or SnapDeal. It can also be used for financial services as the post office savings scheme is immensely popular among the lower middle class folks.

The point is with the merging of so many technology trends, the differentiation between different industries and sectors is breaking down.

I think the moves made by this government so far, may not look sexy or big bang but they will go a long way to reform the Indian financial system. A system where the biggest employment generation sector - small and micro businesses - do not have any access to institutionalised lending and have to depend on money lenders needs to be changed pronto.

amit · Post by **amit** » 21 Aug 2015 05:35

RoyG wrote: Rahulji,

With internet penetration increasing, saving the postal system will be like saving Air India.

Not really, it depends on "how" you want to save the postal system. The built up network and logistics supply chain is simply too valuable to allow it to just wither away. Please see my previous comment.

csaurabh · Post by **csaurabh** » 21 Aug 2015 06:18

India post is already being used for delivery services by flipkart, amazon, etc. I get those deliveries a lot.

Singha · Post by **Singha** » 21 Aug 2015 08:01

many of the smaller ecommerce players like say online book sellers already use india post (speedpost) for delivery. I think speedpost has a more india wide reach than any courier service.

member_27845 · Post by **member_27845** » 21 Aug 2015 08:10

Japan Post is actually a huge savings bank as well as an insurance company
Postal revenues are a small part of its total turnover

Singha · Post by **Singha** » 21 Aug 2015 08:15

for savings bank in our post offices to attract high value of deposit and savings accounts, they need to operate like a bank with dedicated counters, automation, ATM cards, ATM machines, good service.

right now its mostly minimal value deposits by poor people, scowling and very slow service with manual book ledgers, old and tired looking employees, no smart PYTs to attract the young crowd, no atm cards....

just designating anything is only start of the story.

hnair · Post by **hnair** » 21 Aug 2015 08:35

Indian Postal Service, like the creaky old Air India, Indian Railways etc are a strategic asset of the Government of India. It will be used for everything from money transfer to heavy-gauge cargo logistics.

Now. we might not like the portly aunties and surly uncles manning the show at all of the above, but these things are the last resort for too huge a population base and is not going anywhere without unwarranted disruptions that would be electorally damaging. Re-purpose a few services into self-service mode via automation, yes

Such entities will be cross-subsidized using some "pot-hole levelling fund allocation", which causes scrapes at the bottom of our beamers. But those scrapes are a way lot cheaper than being at the wrong end of a class warfare narrative, when the "State doesnt have a face to appeal or spit at". Courts are nowadays too expensive, police stations still hostile and politicians too uppity.

The way India has evolved over past 20 years, even the smartphones are going to add a lot of exciting new systems to the stodgy old systems. ATMs managed by post-offices are infact a great idea, except in the cases where a senior widow needs her pension delivered to her bedside. I believe Khan, while doing a reasonable job of re-purposing, errs massively in ignoring the older gen and their attachment to PO services

Yagnasri · Post by **Yagnasri** » 21 Aug 2015 08:42

RBI Gov seems to contradicting views of the brf gurus

http://economictimes.indiatimes.com/opi ... 552799.cms

These new banks will not go to rural areas and operate or provide connectivity etc there. They only will try to do business in towns and cities, which are already having these services. Further most of existing banks have mobile banking etc and this will only force them to do better delivery.

It took almost a year for RBI to do this work. That is the pathetic performance.

somnath · Post by **somnath** » 21 Aug 2015 08:55

RoyG wrote: Sure, I have said that they are currently limited in what they can do. Where is the issue?

It seems like you need to read up on modern banking and how it works. Every time you deposit money in the bank they hold some and loan some in the form of credit. Credit = money!

The RBI buys gov bonds and then the gov prints physical and in the form of public spending credit. So in a sense, it's a joint responsibility.

Now luckily for us, most of the banking in India is state owned and the family isn't broken so fiscal responsibility of the household is very much intact.

I do happen to know a little bit on modern banking

Anyhow, just FYI, RBI buys very little of govt bonds (only to the extent of finessing tactical liquidity situaitons in the market). Bulk of GOI securities is bought by institutions - banks, insurance companies and Mutual Funds (also a small amount by FPIs). When banks accept deposits, they have an obligation to park 25% of that in G-secs (SLR), and ~3% with RBI (CRR). The balance can be extended as "credit". But the bank could deploy more than 25% in G-Secs. Money supply is expanded when the bank extends credit (dtermined by the "velocity" of money supply), not so much when banks deploy in secondary G-secs. And RBI uses tools like repo/reverse repo to suck out/release liquidity as it deems fit. Net net, "issuing money" is a central bank job.

Coming to payment banks, the potential is interesting, but the business model isnt clear (yet).

One, with a cap of 1 lac on deposits, they are essentially out of the high value money transfers business.
Two, without being able to extend credit (they can only deploy their deposits in G-secs), they will inherently have much lower NIMs.

Which is why guys like Jagannathan (generalist know all finance "experts"!) get it wrong. If NIMs are going to be lower, why/how would the payment bank pay higher rates on deposits?

Second, all banks have mobile banking already - what would the payment bank do separately?

ACtually, the business model is evolving. Payment banks by themselves will adjunct themselves to either a bank or to a telco - be part of the general ecosystem of either.

somnath · Post by **somnath** » 21 Aug 2015 08:59

Yagnasri wrote:RBI Gov seems to contradicting views of the brf gurus

http://economictimes.indiatimes.com/opi ... 552799.cms

These new banks will not go to rural areas and operate or provide connectivity etc there. They only will try to do business in towns and cities, which are already having these services. Further most of existing banks have mobile banking etc and this will only force them to do better delivery.

It took almost a year for RBI to do this work. That is the pathetic performance.

Maybe because he is a real "guru", unlike most BRF gurus

He is right. Most commercial banks have mobile banking. there are mobile wallet companies. What does a payment bank incrementally bring to the table as a value prop?

Add to it the caps on deposit and restrictions on extending credit, you end up being not much more than a tech back-bone to something else. Which is what will happen. The first payment banks would be essentially part of telco ecosystems like Airtel and Reliance Jio, or an adjunct to a bank.

Singha · Post by **Singha** » 21 Aug 2015 09:03

>>I believe Khan, while doing a reasonable job of re-purposing, errs massively in ignoring the older gen and their attachment to PO services

thats not a PO khan problem, its a general khan problem. the old are being shoved out and left to fend for themselves on every front. youth rules.

its probably not a great country to be old and ill in, unless one is very rich or has devoted children living close by.

Yagnasri · Post by **Yagnasri** » 21 Aug 2015 09:10

G. Sec normally have less interest than the commercial lending. Normal banks largely dependent on low cost deposits (Savings and Current accounts) to make profits. The payment banks also have to work on normal accounts if they have to be profitable. That will be a tall order because people already many options to put their money. Lack of physical presence in rural areas is going to be a problem if they want to run business in rural areas.

Somehow I feel it will have a limited impact except on mobile banking.

somnath · Post by **somnath** » 21 Aug 2015 09:42

Singha wrote:>>I believe Khan, while doing a reasonable job of re-purposing, errs massively in ignoring the older gen and their attachment to PO services

thats not a PO khan problem, its a general khan problem. the old are being shoved out and left to fend for themselves on every front. youth rules.

its probably not a great country to be old and ill in, unless one is very rich or has devoted children living close by.

PO Savings bank is a neat idea, actually. India Post already has the brick and mortar - more extensive than anyone else. Its target audience wont have an issue with a depo cap of 1 lac. And it can pitch itself as the primary carrier of govt cash doles - LPG, MNREGA et al.

They should move quickly on getting some good profesionals to set up the infra for POSB - in a country like India there would be immense potential.

Suraj · Post by **Suraj** » 21 Aug 2015 13:28

VijayR wrote:Japan Post is actually a huge savings bank as well as an insurance company
Postal revenues are a small part of its total turnover

Not merely a huge savings bank but probably the biggest in the world by deposit base with $3 trillion in deposits . They also have ATMs all over the place that also work at hours when the regular ones seemed to be out of service, in my experience.

The new payment bank system and recent moves were telegraphed months ago in the Economic Survey document released with the Budget . It describes a lot of the grand plan to fix the subsidy and credit delivery system . It doesn't make for a big budget speech but the effects will be dramatic when millions of MSMEs go from pays % rates per day to similar rates, but levied on a per year basis .

Rahul M · Post by **Rahul M** » 21 Aug 2015 13:34

amit wrote:
RoyG wrote: Rahulji,

With internet penetration increasing, saving the postal system will be like saving Air India.
Not really, it depends on "how" you want to save the postal system. The built up network and logistics supply chain is simply too valuable to allow it to just wither away. Please see my previous comment.

precisely.

RoyG, how about you use the postal infra itself to provide internet access in villages ? erect a couple of internet kiosks with local village chaps as operators who can help villagers with online market access, banking, govt schemes info, applying online for jobs or courses etc etc, the list goes on.

btw, as someone who has used India post's speedpost service heavily, I swear by its low cost, speed and reliability. in 100's of usages never had one mistake from them.

somnath · Post by **somnath** » 21 Aug 2015 14:19

Suraj wrote: The new payment bank system and recent moves were telegraphed months ago in the Economic Survey document released with the Budget . It describes a lot of the grand plan to fix the subsidy and credit delivery system . It doesn't make for a big budget speech but the effects will be dramatic when millions of MSMEs go from pays % rates per day to similar rates, but levied on a per year basis .

Payment banks cannot extend credit - they will deploy their monies in G-Secs. They could theoretically be vehicles of funding govt subsidies in cash.

Arjun · Post by **Arjun** » 21 Aug 2015 16:07

somnath wrote:Payment banks cannot extend credit - they will deploy their monies in G-Secs. They could theoretically be vehicles of funding govt subsidies in cash.

But they are intended to be the 'last mile' in credit delivery across the country - and therefore expected to play a key role in bringing down the cost of credit to the financially underserved.

Yagnasri · Post by **Yagnasri** » 21 Aug 2015 17:44

Cost of credit also depend on cost of funds ( deposits). If payment banks take most of the saving accounts then cost of the funds will increase and due to the cost of credit also.

somnath · Post by **somnath** » 21 Aug 2015 18:17

Arjun wrote:
somnath wrote:Payment banks cannot extend credit - they will deploy their monies in G-Secs. They could theoretically be vehicles of funding govt subsidies in cash.
But they are intended to be the 'last mile' in credit delivery across the country - and therefore expected to play a key role in bringing down the cost of credit to the financially underserved.

That's a slogan, not a business model. As of now, they can't underwrite any credit, first mile or last mile. Credit is delivered by someone underwriting it.

Yagnasri wrote:Cost of credit also depend on cost of funds ( deposits). If payment banks take most of the saving accounts then cost of the funds will increase and due to the cost of credit also.

SA deposit are very profitable, they are the second lowest cost of any liability instrument.

Arjun · Post by **Arjun** » 21 Aug 2015 18:27

somnath wrote:That's a slogan, not a business model. As of now, they can't underwrite any credit, first mile or last mile. Credit is delivered by someone underwriting it.

You didn't understand...they are not in the business of lending or underwriting. They would be intermediaries, delivering institutional credit from third-party financial providers. 'Last mile' access would be provided for institutional credit, in regions which had not been reachable earlier.

Theo_Fidel · Post by **Theo_Fidel** » 21 Aug 2015 18:48

India posts already does the following.

- Money orders.
- Pension payments
- Life insurance
- Small savings
- Forex
- Western Union
- Aadhar Cards

None of these has had an appreciable impact on the economy or even the Postal service, well except maybe the small savings.
Making it the monopoly in yet another financial instrument will probably only doom the instrument involved.

Lets keep in mind India post already has annual loss ~ Rs 7,000 Crore per year.

somnath · Post by **somnath** » 21 Aug 2015 18:58

Arjun wrote:
somnath wrote:That's a slogan, not a business model. As of now, they can't underwrite any credit, first mile or last mile. Credit is delivered by someone underwriting it.
You didn't understand...they are not in the business of lending or underwriting. They would be intermediaries, delivering institutional credit from third-party financial providers. 'Last mile' access would be provided for institutional credit, in regions which had not been reachable earlier.

How would the "institutional" credit provider underwrite the risk, if it doesn't have access to the borrower?

Theo_Fidel wrote:India posts already does the following.

- Money orders.
- Pension payments
- Life insurance
- Small savings
- Forex
- Western Union
- Aadhar Cards

None of these has had an appreciable impact on the economy or even the Postal service, well except maybe the small savings.
Making it the monopoly in yet another financial instrument will probably only doom the instrument involved.

Lets keep in mind India post already has annual loss ~ Rs 7,000 Crore per year.

Actually collection of small savings is a good job done by India Post. They can actually leverage their infra better by being a payment bank. They won't be a monopoly but the most scale player in that space

vina · Post by **vina** » 21 Aug 2015 19:34

Actually collection of small savings is a good job done by India Post. They can actually leverage their infra better by being a payment bank. They won't be a monopoly but the most scale player in that space

I cannot understand this Payment bank bijeess ji. Doesn't India Post already collect deposits and make money transfers, and as for as I know that has been done like forever! Everyone and his great grandfather has probably sent and received a money order in the old days, including probably the "telegraphic money order" .

So, what is this Pay-e-ment Bank Bijness ji. A rebranding eggsercise ?

Arjun · Post by **Arjun** » 21 Aug 2015 19:46

somnath wrote:How would the "institutional" credit provider underwrite the risk, if it doesn't have access to the borrower?

The payments bank would collect all documents required for underwriting and pass on to the underwriting bank....there are also BC models permitted by the RBI.

nandakumar · Post by **nandakumar** » 21 Aug 2015 20:28

vina wrote:
Actually collection of small savings is a good job done by India Post. They can actually leverage their infra better by being a payment bank. They won't be a monopoly but the most scale player in that space
I cannot understand this Payment bank bijeess ji. Doesn't India Post already collect deposits and make money transfers, and as for as I know that has been done like forever! Everyone and his great grandfather has probably sent and received a money order in the old days, including probably the "telegraphic money order" .

So, what is this Pay-e-ment Bank Bijness ji. A rebranding eggsercise ?

Like everything else in India it is all 'maya'. In the sense that nothing is what it appears to be on the surface. Payments bank is actually a 'deposits' bank which may or may not do 'payments'. The bank is freed of priority sector lending and such other pesky little things that RBI imposes. I suspect if a particular deposit is linked to a transaction of loan it would could be structured as a payment. So there you are, a full fledged finacial intermediation masquerading as a money order transaction.

somnath · Post by **somnath** » 21 Aug 2015 20:38

Arjun wrote:
somnath wrote:How would the "institutional" credit provider underwrite the risk, if it doesn't have access to the borrower?
The payments bank would collect all documents required for underwriting and pass on to the underwriting bank....there are also BC models permitted by the RBI.

Being a DSA isn't part of its approved list of activities.

nandakumar wrote: Like everything else in India it is all 'maya'. In the sense that nothing is what it appears to be on the surface. Payments bank is actually a 'deposits' bank which may or may not do 'payments'. The bank is freed of priority sector lending and such other pesky little things that RBI imposes. I suspect if a particular deposit is linked to a transaction of loan it would could be structured as a payment. So there you are, a full fledged finacial intermediation masquerading as a money order transaction.

Actually a bit more as well. A payment bank can open bank accounts without branches. Collect deposits outside of a branch. And have a liabilities distribution that is outsourced. All this is better than what is allowed for full banks.

It won't be able to intermediate credit, that is expressly disallowed.

The business model isn't clear, but will get there.