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India Post apt for financial inclusion in rural areas

Just Rs 100 per household saved every month could bring over Rs 12,000 crores from the 45% of unbanked households in rural areas, Assocham says

October 23, 2013 2:06 IST | India Infoline News Service
Apex industry body ASSOCHAM has come out in support of the proposed setting up of India Post as a rural banking structure to push financial inclusion in the country’s hinterland, claiming several benefits to the economy in this move, including raising domestic savings and investment levels.

Terming this bank proposal as a potential “game changer as a conduit not only for financial inclusion but to induce socio-economic change”, The Associated Chambers of Commerce and Industry of India (ASSOCHAM) listed several benefits like low cost of operation and “as one great opportunity to achieve higher growth rates of household and domestic savings and investment.”

ASSOCHAM has submitted a detailed study on the proposed India Post Bank making several suggestions for its effective functioning in a shift to core banking operations from merely handling savings accounts. It underlined India Post’s claim that its savings schemes already handling over Rs 6,05,697 crores annually with over 28 crore accounts in its various savings schemes.

Among the suggestions of ASSOCHAM was linking of MGNREG and other government payments in rural areas through this India Post Bank, handling the five million SHG units, linkages with the proposed Women’s Bank with at least one woman employee in each post office bank branch, use of PSU banks’ training facilities and bringing India Post bank under one or the other PSU bank for operational oversight in each zone.

Pointing out that rapid urbanization and internal migrations have raised annual remittances from urban to rural areas to a record Rs 70,000 crores and the rural jobs scheme MGNREG is pushing Rs 40,000 crores into villages every year, ASSOCHAM said the India Post with its 1,39,086 rural post offices , one for every cluster of five villages, and 2,63,467 Gramin Dak Sevaks  is best suited to tap into this flow and raise domestic savings.  “This is a huge resource at hand and touches almost every part of the country’s interior” the chamber said.

It also noted other areas of rapid rise in rural incomes like higher minimum support prices for various commodities both food grains and commercial crops and National Livelihood Mission in rural areas. Business and industry were now focusing on the emerging rural market as a new opportunity, the chamber said quoting its own previous studies on rural markets and other recent studies.  Some five million new general stores have come up employing over 8 million people in rural areas in the last five years according to its study.

“Even just Rs 100 per household saved every month could bring over Rs 12,000 crores from the 45 per cent of unbanked households in rural areas” ASSOCHAM asserted listing what the postal structure could achieve if properly utilized.

India Post was already handling a number of financial schemes in villages like National Small Savings, Recurring Deposits, Public Provident Fund, Postal Insurance, etc.  In recent years as many as 4 crores of MGNREG accounts were also handled through post offices for payment of wages, forming over 40 per cent of the MGNREG funds for job entitlement scheme.  The chamber underlined the fact that in the financial aspect of India Post it was handling a currently outstanding balance of Rs 6 trillion (lakh crores), an enormous potential for savings and investment at the grass root level.

ASSOCHAM study also noted the changes occurring in India Post with rapid adoption of information technology, commercial operations in acting as sales agent for many items making it already “technology enabled, self-reliant market leader” through its IT project 2012. The chamber said this change has enabled it to venture into rural banking beyond merely acting as a conduit for remittances from urban to rural areas (and also vice versa) and running savings accounts.

The proposed India Post Bank should enter into core banking operations. ASSOCHAM suggested the new structure for it be linked to a public sector bank for a limited period to gain training and oversight on core banking operations through the existing and additional employees. ASSOCHAM suggested linkage with the proposed Women’s Bank with rural postal bank offices employing at least one woman in each post office bank branch. The chamber also said that low cost of operations that held the key to success in handling rural banking especially among the bottom of the pyramid people was a major advantage for the India Post in its new avtar as a bank.

ASSOCHAM has also suggested linking the Self-Help Groups also to the proposed India Post Bank for disbursal of loans to promote small and micro businesses.

The Central Government at present had to provide budgetary support of Rs 6,000 crores annually to India Post to support its operations.  The chamber was hopeful that with the proposed extension into rural banking operations, India Post would no longer require such support and Government could save this annual outgo besides creating an infrastructure to draw domestic savings from the rural areas where a major transformation was already underway.

ASSOCHAM also released a companion study on “Rural Employment” that revealed a significant shift in employment in villages away from agriculture into new jobs especially in construction sector, growth of several thousand “census towns” that provide new focus for industrial and business activities serving and drawing from villages around and relentless rise in rural wages especially backed by MGNREG jobs scheme and investments in roads, houses and healthcare under the Bharat Nirman programme.

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