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M. Ramesh

Chennai , Aug. 19

IT has been just started as an experiment, first only in Tamil Nadu. Negotiations are still on and the parties are trying to skirt a deadlock. But still, the contours are slowly becoming evident.

In the negotiations that have happened over the last one month, the Department of Posts and four banks - SBI, Indian Bank, Indian Overseas Bank and Canara Bank - have not yet been able to come to an agreement on how much the banks will pay the Postal Department for disbursing their rural loans through post offices.

"It looks like we may not be able to meet the September 1 deadline," a senior official of the Department of Posts told Business Line on Tuesday.

The date was fixed by the Ministry of Finance for the banks to start disbursing micro credit through post offices, albeit as an experimental measure.

According to sources in the banks, the Department offered to do the service for Rs 600 per loan, which the banks refused. The banks'offere of a commission of 0.25 per cent of the loan amount did not find favour with the department.

While negotiations are seemingly deadlocked on this issue, few on either side believe that the deadlock would continue.

First of all, the Ministry of Finance is keen that the post offices' franchise be used for delivering micro-credit - a thought that has already earned a mention in the Finance Minister's Budget speech.

Senior officials on both sides of the table believe that there would be a tremendous advantage in the alignment between post offices and banks.

First of all, it makes sense for the banks because, over time, they can close down all their unviable rural branches, making use of the post offices for loan generation and disbursement. (There are 1.5 lakh post offices all over the country.)

In the current experimental stage, the Postal Department will do nothing but disburse bank loans, but eventually, it will also participate in both the risks and rewards.

In other words, the department would also be responsible for recovery of the loans. This would bring in substantial cost savings to the banks.

For instance, Indian Overseas Bank has about 700 of its 1,434 branches in rural areas. The bank has managed to reduce its loss-making branches, through cost cutting measures, from 323 three years ago, to 79 now, which is further expected to come down to 60.

However, going below this level might prove to be difficult, and the only option left may be to close down the branches, as the Chairman and Managing Director, Mr S.C. Gupta, has himself said. Having post offices chip in might be of help in these areas. For the Department of Posts, disbursing micro credit would mean another revenue stream. Currently, the Budget provides the Department about Rs 1,500 crore. According to Dr U Srinivasa Raghavan, Chief Postmaster-General, Chennai, the bank-post office alignment has the potential to completely eliminate the dependence on the Budget.

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