Postal banks globally effective as payment banks: Nachiket Mor

Nachiket Mor, a member of the central board of the Reserve Bank of India, on Thursday supported the role of postal banks in promoting the availability of financial services.

"I don't want to speak specifically about India Post (which has applied for a commercial banking licence) itself. What I am saying is that worldwide, they (postal banks) have been very effective as payment banks," said Mr Mor, who recently submitted a report on financial inclusion to the RBI.

A former executive director of ICICI Bank, Mr Mor is also a member of an external panel that is scrutinising the 25 banking aspirant applications.

Former RBI Governor Bimal Jalan-headed panel will meet again on February 10. The committee had a mandate to submit its report before January end, by when the RBI Governor, Raghuram Rajan, had expected to issue some new bank licences.

Mr Mor was answering a question from the media on whether he supports the application of India Post for a commercial banking licence. He spoke on the sidelines of a banking inclusion summit organised by a business daily.

Stating that financial inclusion is needed because the country has a small banking system, he said deepening financial inclusion requires either new banks, which is long, steady and slow process, or expanding the reach of existing banks. One way to do this is to empower non-banking lenders, who have an important role to play in inclusion, he said.

The Finance Ministry is not very keen on letting India Post convert itself into a bank, citing practical difficulties, even though more than 90 per cent of its 1.55 lakh post offices are located in villages.

Postal savings as of last March stood at Rs 6.05 lakh crore, which is half the total deposits of State Bank of India - the country's largest bank.

Last week, Minister for Communications & Information Technology Kapil Sibal said his ministry would ensure that India Post gets a banking licence.

"Banks can learn a lot from NBFCs, which have a better hold over asset quality and costs. There is a need for banks to collaborate more for financial inclusion -- they should not frown at the idea of working together," Mr Mor said.

Admitting that it is very expensive for a large bank to originate credit in its own branches, he said studies say the cost of credit for a Rs 1 lakh loan is Rs 23,000. Regional banks have an edge in this sense.

Mr Mor, who called for 10 types of banks, including pure-play payment banks in his report, also said the regulators should play the role of referee and not captain, and leave issues such as pricing for the market to decide.

The report by the Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households, submitted on January 7, envisaged a bank account for every adult citizen in two years.

"By January 1, 2016 each resident, above the age of 18, would have an individual, full-service, safe and secure electronic bank account," the report said.

The Mor panel was announced by Raghuram Rajan when he took over as RBI Governor on September 4.

Mr Mor was a classmate of Mr Rajan at the Indian Institute of Management in Ahmedabad and quit ICICI Bank to join the non-profit sector.

The other members of the Mor panel included former Citigroup CEO Vikram Pandit, Axis Bank chief Shikha Sharma, Crisil chief Roopa Kuduva and corporate lawyer Zia Modi.