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Cabinet grounds India Post bank plans

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The cabinet has rejected the India Post proposal for starting commercial banking services on the ground that it does not have the expertise to handle banking operations as a result of which the venture was not likely to be viable.

Top government sources said the proposal for starting commercial banking services by India Post that was aimed at enhancing financial inclusion through the wide network of the organization has been dropped by the cabinet after the finance ministry expressed reservations over the proposal.

The proposal needed an immediate transfusion of Rs 1,900 crore by the government.

However, the postal department has a poor financial track record. It has piled up huge losses over the last 11 years and has been losing badly to private couriers. India Post reported a loss of Rs 6,346 crore in fiscal 2011-12 which weighed against its credibility.

However, India Post is doing well on the savings front. Its outstanding balance under the Post Office Savings Scheme stood at Rs 6.05 lakh crore on March 31, 2013. This is half the deposits of State Bank of India and double that of the largest private lender ICICI Bank.

The postal department is one of 26 contenders for banking licenses. It had moved the proposal to the cabinet in order to enable it to meet the financial eligibility criteria of the Reserve Bank of India for new bank licenses to be issued by January next year.

India Post needs the government’s permission for the Rs 700 crore capital that is needed to set up the bank if it gets a licence. It will then require an additional Rs 1,200 crore in the first five years of its operations.

Unfortunately, over half of the population in rural India, do not have a bank account and the proposal for a postal bank would have a negative impact on government’s push to financial inclusion. The postal department has close to 1.55 lakh offices across country, with 1,39,040 in rural areas.

India Post reported a loss of Rs 6,346 crore in fiscal 2011-12.

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