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New Delhi: India Post is accelerating preparations for the launch of its ambitious payments bank—from putting a board of directors in place to finding a technology partner.

The postal service aims to put in place a board of directors in the next one month or two; it has also approached the appointments committee of the cabinet (ACC) to appoint a chief executive officer (CEO) and chief operating officer (COO) for India Post Payments Bank (IPPB), S.K. Sinha, secretary, department of posts (DoP), said.

The plan is for IPPB to start operations by March 2017, minister of communications and information technology Ravi Shankar Prasad had said in May.

The Reserve Bank of India (RBI) in August gave conditional licences to 11 among 41 applicants for setting up payments banks, a regulatory innovation aiming to promote financial inclusion by targeting small depositors such as migrant workers, low-income households and tiny businesses.

Three licence winners have since withdrawn their applications—Tech Mahindra Ltd; Sun Pharmaceutical Industries Ltd promoter Dilip Shanghvi and his partners IDFC Bank Ltd; and Telenor Financial Services and Cholamandalam Investment and Finance Co.

India Post is going full speed ahead.

Independent directors will make up a majority of the members on the IPPB board, which will also include government representatives, including officials from the department of posts, Sinha said.

Besides approaching the ACC to appoint a CEO and COO, it has requested several public sector banks such as Punjab National Bank, Canara Bank, Bank of Baroda and Bank of India to suggest potential candidates from their banks for board or executive director positions.

A committee will be set up in a matter of days to choose candidates for other important positions, such as chief technology officer and chief financial officer.

“I suspect they (CEO, COO) will have to come from the public sector," said Ravi Trivedi, an independent consultant who was formerly with audit firm KPMG.

“You need to have somebody who actually understands at some level the culture of a public sector organisation and then transform it from inside," he said.

The bank will initially have more than 2,000 of its own employees, separate from the department of posts.

The department expects to float a request for proposal seeking a technology partner. Sinha didn’t say how much the technology contract would be worth, but expects a vendor to be on board by the end of August.

Some experts have questioned the viability of payments banks because of tough regulatory requirements, potentially thin margins and competition from established commercial banks.

Payments banks are not allowed to give loans and cannot accept deposits above 1 lakh. While the structure limits the scope for growth, it also reduces the exposure to risk and volatility faced by commercial banks.

IPPB probably has the best shot at success in the payments banking space, with a distribution network of 154,939 post office branches spread in the farthest corners of the country.

The government has already spelt out plans to open 650 IPPB branches by September 2017.

The bank will start with about 50 branches, which will be spread across metros, tourist places, state capitals and remote regions, with at least 10% reserved for the north-eastern states, according to Sinha.

The payment bank branches will be separate from India Post and will be staffed by a separate set of employees, Sinha said.

To leverage the strength of the vast postal network, the post office branches will be linked to the payments bank and will offer IPPB services.

“The post offices will act as banking correspondents for the payments bank," Sinha said.

IPPB is also expected to get the support of more than 250,000 Grameen Dak Sewaks— agents recruited by the postal department to service in rural areas—in enrolling account holders.

India Post already accepts money from customers as deposits in post office bank accounts and long-term deposit instruments such as the National Savings Certificate.

Banks including Barclays Plc., Deutsche Bank AG, Citibank NA and several state-owned banks have offered to partner with the postal service, Mint reported on 3 June. Sinha said there were no plans for such a tie-up.

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