Agri-cooperative credit societies revival can help spread banking space

Being small may not always be beautiful. Small payment banks seem to be conveying this very message as they lose steam. Though they began their operations two years back with lots of hope to achieve financial inclusion and bring the unbanked population into banking space, not much has moved forward. These banks that were to cater to small ticket customers and disrupt the power hierarchy in the banking industry have done little so far.

The Committee on Comprehensive Financial Inclusion for Small Businesses and Low Income Households set up under the chairmanship of Nachiket Mor in 2014 had recommended setting up small payment banks. While the RBI accepted the Mor panel recommendations, the big question is why did the payment banks fail to take off? From this arises another question – whether these alternative banking platforms are sustainable at all or will get merged into any of the big banking behemoth? A case in point is the Bharatiya Mahila Bank that became operative as an Indian financial services banking company in Mumbai. Then PM Manmohan Singh and Congress chief Sonia Gandhi had kicked off the bank’s operations in November 2013. Somewhere down the line, the all-women serviced bank with focus on bringing women into banking mainstream lost pace. Within five years, the Bharatiya Mahila Bank got merged into SBI as its very existence was under threat. The jury is out on whether a similar fate awaits small payment banks.

Among the four in operation, the deposit base put together is a very modest Rs 540 crore with Airtel Payment Bank dominating this space owing to instant telecom connectivity driven financial settlements like cheques, drafts and money transfers. The potential to succeed may not be with other players like Paytm or Fino small payment banks. India Posts Payment Bank (IPPB) that was launched with pomp and show by PM Narendra Modi on Sept 1 may have the right infrastructure and personnel to spread financial inclusion.

With 1.55 lakh post offices and huge excess personnel trained in basic banking services that can be offered at doorstep, IPPB could trigger a rural banking transformation. Technology interface could be the key to success of these banks. While Airtel and Aditya Birla groups have huge telecom backbone to support banking services, IPPB will piggyback on under-utilised capacities of BSNL. IPPB’s success will also mean re-invigorating the India Post network that’s incurring huge losses. Most postal business vanished overnight after the advent of computers and mobile phone linked communications.

In fact, the government should also consider reviving agriculture cooperative credit societies that operate in clusters of villages to spread the banking space. With crores of members, cooperative banks network, if revitalised, could play a yeoman role in the country’s rural space. But then, stringent regulations and monitoring will have to guide the small banks, credit cooperatives or cooperative banks run by the states and the Centre. Volumes-driven banks in this space could hold on. Or else, they may have to close shop. RBI had always viewed cooperative banks with a lot of suspicion especially during demonetisation. Small payment banks and cooperative credit societies may not be far behind given their tiny size and very little control mechanism. Their success will help set up viable and sustainable banking organisations at the grassroots.