INDIA POST PAYMENTS – IPPB PRELIMS: The launched on September 1, 2018, by PM is a payments bank that aims at making banking services available at people’s doorstep. Indian Post Payments Bank IPPB is a wholly-owned payments bank, a subsidiary of the Indian postal Department, which with 100 percent Government of India equity works through a network of post offices and nearly 3 lakh postmen. Indian Post Payments Bank with the vision of building the most affordable, accessible, and trusted bank for the common man and driving the agenda of financial inclusion for the under-banked population will be governed by RBI. Though the services of Indian Post Payments Bank is for all the citizens but the primary focus of IPPB is serving the low-income households, social sector beneficiaries, unorganised sector, migrant laborers, MSMEs – Micro Small and Medium Enterprises, and Panchayats in rural areas also the under-banked and unbanked segments in both the urban and rural areas. IPPB offers services through a mix of physical and digital platforms. Channels used for delivering IPPB services include: • Doorstep, mobile and internet banking • Counter operations • Pre-paid instruments such as PoS, mobile wallets, MPoS, etc. • ATMs/micro ATMs Opportunities Of IPPB • Currently, there are about 50,000 bank branches in rural India, while the Department of Post alone has almost 1,30,000 service points in rural India, which, if converted into points of banking service, can extend the presence of IPPB banking services in rural India by 3.5 times. • Coupled with convenient, simple, and affordable digital solutions, IPPB intends to leverage the trust that the public has on India Post. • To provide doorstep banking services the 3,00,000 employees of Indian postal services are provided with biometric and handheld devices. • IPPB may help increase rural per capita income through domestic savings by tapping the savings of rural people. • IPPB will reduce the exploitation of rural people by money lenders and provide effective . • The expansion of rural banking services has become difficult as the mounting pressure of NPAs turned towards the over-burdening task of recovery of credit. IPPB will reduce this pressure and ease the expansion of banking services. India Post Payments Bank Services The IPPB is like any other bank but on a much smaller scale. However, it does not involve any credit risk. Opening up an account in the IPPB can be simply done through the Indian Post Payments Bank App (IPPB App) just by providing details like your Aadhar number with KYC verification. www.pragnyaias.com 7288081111

One of the most distinctive features of the India Post Payments Bank IPPB is its doorstep banking service, which makes it very accessible. Through this model, banking has the potential to reach the doorstep of every Indian citizen. IPPB App Services 1. The doorstep banking facility offers a range of services including account opening, cash deposits and withdrawals, money transfers, recharge and bill payments, third- party services like insurance, loans, investments and other account-related services. 2. The account-related services include updating PAN and nomination details, requesting account statements, and issuing standing instructions. 3. The IPPB app will also offer RTGS, IMPS and NEFT services for the transfer of funds. Salient Features Of Indian Post Payments Bank • The IPPB offers three types of savings accounts: regular, digital and basic. • No fee for withdrawals made from IPPB ATM or PNB ATM since it has a tie-up with . • The bank will offer a 4% interest rate in all the savings accounts. • It also offers Forex services at lower charges. • Unlike most banks, there will be no need to maintain a minimum quarterly average balance. • No charges for the lack of a minimum account balance. • The IPPB also offers a QR card service that will help one access their bank account and make transactions without having to remember their account number. Using the QR card, all transactions can be authenticated via biometric verification. • Indian Post Payments Bank offers a free debit card with an annual maintenance fee of Rs. 100/- from the second year. • Using a network of post offices, and the services of over 3,00,000 postmen, the IPPB will reach customers without the traditional bank branches. • IPPB provides third-party products like loans and insurance through the other banks or companies that it has tied up with. • In the absence of traditional bank branches, the IPPB aims to reach its customers through their mobile phones. That is why it has the chance to flourish among people who are tech- savvy and comfortable with technology. • The IPPB will encourage anyone above 18 years of age to open digital savings accounts, using their Aadhar and PAN cards. The KYC formalities for such accounts must be completed within 12 months. • Once the KYC formalities are done, the digital will be upgraded to a regular savings account. As far as deposits are concerned, customers are allowed a maximum yearly cumulative deposit of 2,00,000/- Rupees, in the account. • Post offices have also been permitted to link the 17 crore Postal Savings Accounts with the IPPB accounts. The India Post Payments Bank (IPPB) will benefit those sections of society that remain outside the banking sector like migrant laborers and low-income households.

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• With the government allocating additional funds to meet the requirements of the operations of the IPPB, it is looking to compete with Private Payment Banks. IPPB Challenges 1. Considering the vastness of the India Post Payments Bank (IPPB), there are bound to be some challenges that it will face, and these are not mere teething troubles. Burdened with the legacy of the India Post, the IPPB would take some time before it can showcase its fullest capabilities. In the financial year of 2016-17, India Post had a revenue deficit of Rs. 11,969/- crores. In the financial year 2015-16, India Post had a revenue deficit of Rs. 6,007/- crore rupees. Thus the revenue deficit in 2016-17 was almost double that of the financial year 2015-16. 2. As per RBI rules, all payments banks are required to invest 75% of their total demand deposits in government-linked securities and treasury bills, making it difficult for IPPB to turn a profit. 3. Another challenge is the lack of tech-infrastructure in the country’s remotest rural areas. However, the Government is confident that it will be able to overcome these hurdles and that the IPPB will be a successful venture. 4. The launch of the IPPB has marked a tectonic shift in India’s banking landscape- opening doors of rural India to endless possibilities in the banking sector. However, the mammoth government initiative does have some hurdles that need to be crossed and which seem to be more than mere teething troubles. 5. Another major challenge facing the India Post Payments Bank (IPPB) is its infrastructure. The biggest being in remote rural areas. With the plan of making the postman a mobile bank, it seems difficult in areas where electricity and internet connectivity are an issue. With 90% of the post offices situated in rural areas, this is a challenge that may need urgent attention. 6. One would also need to ensure adequate training to the staff. There are frequent power failures in rural areas, thus to run all these services in a seamless manner and without any disruption, proper infrastructure and facilities are required. 7. Further, the Department of Posts is facing a lack of manpower as well. There is a shortage of manpower to the tune of 40%. 8. The IPPB activities will also be run through postmen, but there is an acute shortage in postmen staff. Thus, all postmen posts should be filled up. However, the postal department is taking several steps to raise their earnings by providing services like selling application forms of educational institutions and recruitment agencies, railway ticket booking, facilities for Aadhar registration and upgradation, passport services, Gold Bond Schemes, etc. Shifting to e-commerce is also providing an added push, raising the revenue earned to 345 crore rupees in 2016 from 172 crore rupees in 2014-15. For the success of IPPB, rural infrastructure has to be strengthened. The dependence on the postman which is one of the biggest advantages of the IPPB is also its biggest challenge, as along with the post, he will have an added responsibility. The government is saying that it is providing all training and equipment to the India Post employees to beat all the odds to make this ambitious initiative a resounding success.

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Post Independence, the Department of Posts had a huge responsibility of connecting every corner of the country. In order to keep up with the pace of an advancing population, and it’s increasing needs, the government has over the years, taken several steps to enhance the postal network and skills of the department. An account of the reforms: • For more than 150 years, the Department of Posts has been the backbone of India’s communication network. After Independence, the need for providing communication had doubled across the country. • In 1947, there were only 23,344 post offices across the country. Of this number 19, 184 post offices were in rural areas. 4,160 post offices were in urban areas. • With the rapid rise in population, the demand for post offices has also increased. In light of the increased pressure, the government has been taking several steps to improve the functioning of the postal department. • As the reforms came, inland letters changed to Speed post. And Speed post has now become an e-post. Timeline of Indian Postal Services: • In the year 1879, Postcards were introduced. • The Indian Postal Order came in 1930. For faster and more precise delivery. • The Postal Index Number or PIN Code was introduced in 1972. • In 1977, the Department of Posts, introduced the Value Payable Posts (VPP), parcels and insured parcels. • In 1985, a rapid demand and increased stress on communication led to the division of the India Post into: 1. The department of Posts and 2. The department of Telecommunications • In 1986, Speed Posts were introduced. • By 1994, people could send money to their loved ones, living in other parts of the country through Money Orders. • Post Independence, the Indian Postal Network expanded over 7 times. However, postal reforms continue even today. Project Arrow Project Arrow was introduced in April 2008. The project aims to create an effective, friendly environment for staff and customers, providing secure IT services and improving mail delivery, remittances both electronic and manual and postal savings plans. Then the Mail Network Optimization Project or MNOP was implemented with the objective of consolidation and optimization of the mail network of the Department of Posts with a view to improving the quality of mail operations. • Services such as all kinds of letters, speed post, registry, parcels, and track and trace facility for money orders have been expanded and improved. • According to government data, more than 27,215 post offices and administrative offices have been linked to the wide area network or WAN. • New Services such as Express parcel, business parcel, cash on delivery, online money transfer services, instant money order, and e-greeting have also been added.

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• A mobile app has also been launched. • The latest reform is the launch of the Government’s ambitious India Post Payments Bank (IPPB) on the 1st of September, 2018. Today, one can easily spot a GPS enabled post office vehicle on the streets. The department of Posts has also started the initiative of postal deliveries through GIS mapping in select cities. With an objective to leverage the strength of the vast postal network, the Department of Posts has also started retailing mutual funds and bonds. Indian Post Payments Bank Gist The Union Cabinet under the Chairmanship of Prime Minister has given its approval for setting up the India Post Payments Bank (IPPB) as a Public Limited Company under the Department of Posts, with 100% Government of India (GOI) equity. The India Post Payments Bank is a non-full service bank that has been recently joined as a Public Limited Company under the Department of Posts with 100% Government of India equity. The four key features of India Post Payments Bank are: • Financial Literacy • Streamlining Payments • Financial Inclusion • Ease Of Accessibility The aim of this bank is to accelerate financial inclusion. They will not lend to customers and will have to store their funds in government papers and bank deposits. They can accept demand deposits, issue ATM or debit cards but not credit cards. They can carry out payments and remittance services through various channels and accept demand deposits. They can also offer card acceptance mechanisms to third parties such as the ‘Apple Pay.’ The total expenditure involved in this project is Rs 800 Crore. All citizens, especially 40% of the country’s population that is outside the ambit of formal banking in the country will benefit from this project. The project rolled out in the entire country in a phased manner. GENERAL STUDIES PAPER-3—ECONOMY--MAINS

India Post Payment Bank (IPPB) Why in News? ▪ The Prime Minister launched India Post Payments Bank (IPPB) on September 1, 2018. ▪ It is an initiative of the government aimed at making banking services available at people’s doorstep. What is IPPB? ▪ IPPB is a wholly-owned subsidiary of Deparment of Post, with 100 percent Government of India equity. ▪ It is a payments bank of the Indian postal department which will work through a network of post offices and nearly 3 lakh postmen. ▪ IPPB’s Vision 1. Building most accessible, affordable and trusted bank for common man. 2. Spearheading Financial Inclusion- agenda for under-banked populace.

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▪ It will be governed by Reserve (RBI). ▪ While its services will be available to all citizens, the IPPB will primarily focus on serving social sector beneficiaries, migrant labourers, un-organised sector, Micro Small and Medium Enterprises (MSMEs), Panchayats, low-income households, in rural areas and the unbanked and under-banked segments in both the rural and urban areas. ▪ IPPB will offer services through a mix of physical and digital platforms. ▪ Channels for delivering services will include: 1. Counter operations 2. ATMs/micro ATMs 3. Doorstep, mobile and internet banking 4. Pre-paid instruments such as mobile wallets, PoS, MPoS, etc. ▪ It will initially have 650 branches and 3,250 access points in post offices across the country. ▪ All the 1.55 lakh post offices in the country are targeted to be linked to the IPPB system by December 31, 2018. Functions of IPPB ▪ It will accept deposits, offer remittance services, mobile banking and third-party fund transfers. ▪ It offers 3 types of saving account:

1. Regular Account – Safal, 2. Basic Savings Bank Deposit Account (BSBDA) – Sugam and 3. BSBDA Small – Saral ▪ The maximum limit on deposits for current and savings account is Rs 1 lakh. ▪ The bank offers a 4 per cent interest rate on savings account. ▪ They can issue debit cards and ATM cards, but they cannot issue credit cards and cannot loan money. ▪ It will provide social security payments like MNREGA wages, direct benefit transfer and give access to third-party services insurance, mutual funds. ▪ IPPB account holders will be issued a QR Code based biometric card with a unique QR code. What is Payment Bank? ▪ Payments banks were part of the ’s strategy of offering differentiated banking licences. ▪ A committee headed by Dr. Nachiket Mor recommended setting up of 'Payments Bank' to cater to the lower income groups and small businesses. ▪ A payments bank is a differentiated bank, offering a limited range of products. ▪ It can accept demand deposits only that is savings and current accounts, not time deposits. ▪ Payment banks are restricted to holding a maximum balance of Rs. 100,000(Rupees one lakh only) per individual customer. ▪ Payment Banks cannot accept Non-Resident Indian (NRI) deposits. ▪ The Payment Banks cannot set up subsidiaries to undertake non-banking financial services activities.

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Potential of IPPB ▪ There are currently about 50,000 bank branches in rural India. Whereas the Department of Post alone has almost 1,30,000 service points in rural India – which if converted into points of banking service, can extend presence of banking services in rural India by 3.5 times. ▪ It will allow leveraging the trust which the India Post enjoys in the minds of the public, coupled with the simple, affordable and convenient digital solutions. ▪ A large number of the 3,00,000 employees of the postal services would also be equipped with biometric and handheld devices to provide doorstep banking services. ▪ Due to failure of rural banking in past years due to mounting Non-Performing Assets (NPAs), banks are over-burdened with the task of recovery of credit, rather than expansion if banking services – possible through IPPB. ▪ Tapping of savings of the rural people through IPPB may help increase per capita income of rural people through domestic savings. ▪ Money lenders in rural areas try to exploit people under financial aid, IPPB will help to reduce such exploitation and provide effective financial services. Benefits of IPPB ▪ Expansion of Rural Banking- IPPB will help reinvigorate the postal system, at the same time expanding Rural Banking through its wide network of branches across India. ▪ Access to Diversified Services - Post Office savings Bank (POSB) accounts linked to IPPB will allow lakhs of POSB accounts access to banking thereby enabling them to enjoy internet banking, mobile banking, electronic fund transfers, online bill payments, digital payments etc. across the spectrum of banks 24×7. Facilities such as third-party payment, insurance and mutual funds etc will provide financial accessibility to diverse financial services. ▪ Social & Financial Inclusion - IPPB can act as a catalyst for social and financial inclusion through the vast network of post offices throughout the nation. Last mile delivery of services through the postman - and ‘Grameen DakSewaks’ acting as Mobile bankers – providing "banking at doorstep." ▪ Push to MSMEs - Rural MSMEs will benefit from financial services offered by IPPB. ▪ Effective DBT - IPPB will enable better penetration of schemes and better delivery of benefits. Banking through IPPB would give a boost to Government’s initiatives like promoting digital transactions and Direct Benefits Transfer (DBT). ▪ Employment - IPPB will generate employment opportunity for more than 3500 banking professionals, who will be engaged in propagating financial literacy across the country. ▪ Credibility - It will also not have to gain the trust of customers like its competitors, especially in the rural areas, as the local postman is still an integral part of the day-to-day lives of the rural populace. Challenges ▪ Low Awareness - Due to low financial and digital literacy among rural masses, they might be discouraged to opt for formal financial services under IPPB. ▪ Strict Regulation - Given the severe restrictions imposed by the RBI on how it can employ its funds, the odds seem to be stacked against the IPPB at the moment.

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▪ User Charges - To generate revenues, it plans to charge fees on money transfers and other financial services – which may act as a disincentive for rural customers. ▪ Competition - The IPPB is also likely to face stiff competition from private companies already given Payment Bank licenses. ▪ Lack of Infrastructure - Lack of 24/7 electricity, internet services and infrastructure in rural areas is another constraint. ▪ Human Resource - The staff needs extensive training in handling the banking products - especially insurance and pension products - as they are different from the current financial products in India Post’s portfolio. The real success will depend on the implementation of technology and staff's adaptation to new technology. ▪ Technology - The post office payment bank will have to quickly move to an online platform to make it easier for customers to access their accounts and conduct transactions. With existing infrastructure and resources it is a challenge. Way Forward ▪ While the advantages enjoyed by IPPB are endeniable, it needs to cross over these two hurdles — financial and pricing — to prevent itself from becoming another . ▪ In order to make IPPB a game changer and to sustain in competition it requires efficient infrastructure, autonomy in funds management, training and skilling of the postal employees and promoting use of cashless transactions among rural masses. IMPORTANT FOR UPSC PRELIMS-2020 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. www.pragnyaias.com 7288081111

• 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, 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. www.pragnyaias.com 7288081111

• 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 Indian Postal Payment Bank A Payments Bank is a “differentiated bank” set-up by the Reserve Bank of India (RBI) to further financial inclusion for the underserved population by providing (i) current and savings accounts and (ii) payments or remittance services to migrant labour workforce, low income households, small businesses, unorganized sector entities and other users. Services provided: • IPPB will offer demand deposits such as savings and current accounts up to a balance of Rs 1 Lac, digitally enabled payments and remittance services of all kinds between entities and individuals. • Provide access to third-party financial services such as insurance, mutual funds, pension, credit products, forex, and more, in partnership with insurance companies, mutual fund houses, pension providers, banks, international money transfer organizations, etc. • Issuance of ATM / Debit Cards. Payments banks, however, cannot issue credit cards • Payments banks will be permitted to handle cross border remittance transactions in the nature of personal payments or remittances on the current account. Beneficiaries can access income from government’s DBT programs like MNREGA wages, Social Security Pensions and scholarships, directly from their IPPB bank account with near zero friction. They can also pay their utility bills, fees for educational institutions and much more from the same IPPB account. It ensures that wherever they are, they can make the most of the financial opportunities available to them. All 1.55 lacs post offices including the 1.39 lac of the rural post offices will be mapped to the IPPB branch at the district headquarter and function as access points for IPPB. IPPB will usher in state of the art internet and mobile banking platforms, digital wallets and use innovative and emerging technologies to catalyse the shift from a cash dominant to a less cash economy. About IPPB IPPB has been set up as a Public Limited Company under the Department of Posts with an independent Board of Directors. It will be headed by a Managing Director and CEO, and will set up a corporate head quarter and approx. 650 branches to manage its functions on a day to day basis. IPPB will leverage the physical and IT infrastructure of the Post office and be set up on a lean operating model. It will focus on low-cost, low-risk, technology led solutions to extend access to formal banking. Example of Postal banks in other nations www.pragnyaias.com 7288081111

Postal operators are the leading financial services providers in over 75% of the countries around the world. Some of the Post Banks in the world have been highly successful, i.e. Japan, New Zealand, Switzerland, France, China, South Korea, South Africa, Morocco. Practice questions: 1. Which of the following restrictions has been placed on payments banks as compared to other commercial banks? 1. Payments banks cannot issue credit cards and cannot grant loan/ credit out of their own books of accounts. 2. The payments bank will be restricted to holding a maximum balance of Rs. 1,00,000 per individual customer. 3. Under Cash reserve ratio Payments Bank will be required to invest minimum 75 per cent of its demand deposit balances in Government securities/treasury bills. Codes: a) 1 and 3 b) Only 2 c) 1 and 2 d) All Ans: d Exp: Given that their primary role is to provide payments and remittance services and demand deposit products to small businesses and low-income households, payments bank will initially be restricted to holding a maximum balance of Rs. 1,00,000 per individual customer. Payments banks cannot issue credit cards and cannot grant loan/ credit out of their own books of accounts. Apart from amounts maintained as Cash reserve ratio (CRR) with RBI, Payments Bank will be required to invest minimum 75 percent of its demand deposit balances in Government securities/treasury bills with maturity up to one year and hold maximum 25 percent in current and fixed deposits with other scheduled commercial banks for operational purposes and liquidity management. The payments bank cannot set up subsidiaries to undertake non-banking financial services activities. The other financial and non-financial services activities of the promoters, if any, should be kept distinctly ring- fenced and not comingled with the banking and financial services business of the payments bank. The payments bank will be required to use the words “Payments Bank” in its name in order to differentiate it from other banks. 2. IPPB which aims to promote financial inclusion and to enable quick payment services using the new technologies has been recommended by which of the following committee? a) Nachiket Mor committee b) Bimal Jalan Committee c) Kelkar Committee d) Yash Pal Committee Ans: a

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