Post Offices Could Function as Payment Banks, Hints RBI Governor Ragjuram Rajan

Even as the Finance ministry tried to block to move, Reserve Bank of India governor Raghuram Rajan has backed the postal department's demand to set up a bank.

Rajan stated at the annual day lecture of the Competition Commission of India on 20th May 2014, that the 'Post Bank' could be given a limited banking licence that will be able to raise deposits and offer payment as well as remittance services.

However, he stated that there would be restrictions on investments and the whole amount would have to be placed in government securities. “The proposed Post Bank could start as a payment bank, making use of post office outlets to raise deposits and make payments," he said. “If payments banks are successful, they will allow us to steadily reduce some of the obligations we impose on commercial banks."

“Key in any new structure is that there should be no arbitrage possibilities hurting the current banking system. Today, a commercial bank can convert itself into a payment bank by maintaining 100 percent SLR margins. Of course, it may not want to, because it seeks to make more money through corporate lending, but this possibility indicates regulations will not favour a payments bank unduly,” said the RBI Governor.

Some of his colleagues believe that a payments bank will be unviable, while others believe that it will skim the cream of banking business away from regular commercial banks.

Rajan says that we can debate this issue for a long time, or conversly we can experiment by enabling a few payments banks and monitoring their performance.

The RBI proposes to discuss further steps with stakeholders in this regard, he states.

According to Rajan, the RBI was committed to freeing up entry into banking and would announce a more regular process of giving licences. India Post would be required to invest in a massive upgrade of its post offices as well as retraining of its employees if it wants to act more like a bank.

Chiraag Patel

Chiraag Patel is a Senior Reporting Analyst and the Editor of Bitcoin and Virtual Currency channels at Lets Talk Payments. He is an engineer with deep interest in MMORPG, Virtual Banking, Game Currency and Virtual Cash. Chiraag enjoys Reading& Blogging with focus on New Innovation, Technology & Startups in the Payments Space.

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