India Post Payments Bank Evaluating Options To Convert To SFB, Says CEO

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India Post Payments Bank is evaluating options on how to convert to a small finance bank (SFB) as it is keen to provide micro credit at the last mile.

“We are looking at synergies at the last mile. Micro credit is a very important component of financial inclusion. That is more like a trigger point (for our decision),” said Suresh Sethi, MD and CEO, India Post Payments Bank (IPPB).

Speaking to reporters on the sidelines of FIBAC 2019, Sethi pointed out that the postman, as part of the social fabric at the last mile, has very good understanding of the informal credit scenario in a village. “As we become data-rich through transactional history, we can create credit surrogates for people who don’t have any credit scores. That is what we want to leverage and see if there is a micro credit offering which we can undertake.”

The Department of Posts had recently said that it has been decided to convert IPPB into a SFB, enabling it to offer small loans to customers.

Sethi, however, said that at present there is no timeline for the shift and the bank is just evaluating models. He also stressed that IPPB is currently focussed on its work as a payments bank, but noted that there are some challenges to the model.

“There are limited revenue pools in payments banks, and with digitisation, we are seeing commoditisation of a lot of services and the margins are getting compressed. So, the challenge is -- what sort of underlying business should a payments bank pursue?”

One option is third-party products such as offering credit, insurance, and investment products that can become alternate sources of revenue, he suggested.