Public sector bank
employees are so overwhelmed by the sheer number of government-sponsored
schemes they are saddled with, that they have begun to come up with parodies.
One such spoof scheme is what they have named the Pradhan Mantri Sishu Palan
Yojana, where customers with SB accounts can leave their children with the bank
manager for babysitting services at a nominal cost.
This might be just a
joke, but it does reflect the deep frustration among bankers at being mandated
to carry out an enormous number of the government’s social objectives.
There has been a lot of
commentary asking the government to reduce its involvement in Public Sector
Banks (PSBs). The government has been asked to reduce holdings, step away from
appointments of chairmen and board of directors, and to not interfere in bank
schemes such as the farm loan waiver or mandatory priority sector lending, But
nobody is talking about the government using PSBs to roll out its various
populist schemes, which will affect their day-to-day operations in the short
run, and its overall competitiveness in the long run.
A quick search will
reveal that the number of government social schemes that use PSBs is
uncomfortably high. The schemes cover a range of areas such as insurance
(Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana,
etc), pension (Atal Pension Yojana), financial inclusion (Pradhan Mantri Jan
Dhan Yojana), and priority sector lending, which includes various schemes under
agriculture, micro and small enterprises, education, housing, export credit and
others.
Ambitious targets
Each scheme usually
comes with countrywide targets set by the concerned ministry, which are then
distilled and divided into smaller numbers for each bank branch. For example,
the Pradhan Mantri Jan Dhan Yojana (PMJDY) has an ambitious target of opening
10 crore accounts, to be divided among the banks. One PSB was assigned a target
of 1 crore accounts and one of its branches in Bengaluru had a target of 1,000
accounts to be opened within a week. Such targets are rarely met, and even if
they are, they rarely match the desired outcomes, due to complete misalignment
of incentives. With a severe dilution of Know Your Customer norms, there is
enough evidence about the actual success of the scheme — 75 per cent of the
accounts are empty, multiple accounts have been opened by single persons, and
there are huge costs that the banks bear (Rs. 200 per bank account).
But what is perhaps the
biggest cost to banks is the opportunity cost they lose in implementing these
schemes. Ambitious targets and time frames take up precious time that could
have otherwise been used to carry out the original mandate of the banks —
accept deposits and make loans. All normal bank activity comes to a standstill
during such public drives, with employees being swamped by the targets. Even
big business clients are asked to wait until the pressure eases. The PMJDY
drive halted all normal banking activities for an entire week.
At a time when public
sector banks are finding it hard to beat the competition posed by deep-pocketed
foreign and private sector banks, they can ill afford to let their biggest
customers take a back seat while they meet social goals.
Relevance of India Post
However, since social
security measures are important, how about using another government-run
behemoth, India Posts, for this task? As it struggles to find relevance in the
digital age, perhaps the answer lies in reusing its enormous reach for
delivering social schemes. In the U.S., this idea is being examined, and the
U.S. Postal Service presented a report this month outlining exactly how postal
banking could promote financial inclusion while turning in a neat profit for
the service.
Two criteria have to be
considered: reach and capability. India Post has a network of over 1.5 lakh
branches across India, a reach that far exceeds all the PSBs combined. Of the
1.5 lakh branches, about 1.4 are in rural areas, compared to the combined
23,000 rural branches of the public sector banks.
India Post already runs
the Post Office Savings Bank account, which handles cash worth Rs 6 lakh crore
per year across 28 crore accounts. The service has also been quite successfully
handling cash payments in the Mahatma Gandhi National Rural Employment
Guarantee Act — nearly 5.6 crore MGNREGA accounts, and wages amounting to
nearly Rs. 10,000 crore have been disbursed to beneficiaries through 97,709
post offices across the country. Of the three main building blocks of financial
inclusion — cash storage, disbursing payments, and giving credit — India Post
has already shown that it is quite capable of handling the first two.
In the longer run, for
India Post to play a bigger role in the fulfilment of the government’s social
objectives, the following steps can be taken: First, one of the smaller and
healthier PSBs could be merged with Indian Post so that the latter acquires a
banking licence and a trained workforce. Second, incentives could be offered to
the present workforce to sit for the banking exams. Third, banking exams could
be made a requirement for a percentage of the new recruits; and, finally, the
banking division of the post office could be brought under the RBI’s regulatory
purview.
With this, India Post
can expand from financial inclusion to handling insurance and pension accounts,
priority sector lending in rural areas, and many other financial functions as
well.
Some post offices
around the world have undergone this transformation quite successfully. The
Royal Mail of the U.K., for example, does all the things a bank does and
additionally even provides telephone and broadband service.
This move could free
public sector banks from being yoked to social sector objectives and allow them
to become competitive and function freely in the highly cut-throat banking
sector. Simultaneously, it could harness the potential of the post office
network in India.
