India Post has extensive outreach in rural areas of Jharkhand with 13 Head Post Offices (HPOs), 454 Sub Post Offices (SPOs) and 2,643 Branch Post Office (BPOs).[1] With 3,097 (454 SPOs + 2,643 BPOs) outlets present in rural and semi-urban areas, India Post has a reach of at least one outlet for every two of the state’s 4,423 gram panchayats
 
India Post plays a major role in disbursement of G2P payments in Jharkhand, especially for MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme). During the financial year 2015-16, out of a total of Rs. 89,364 lakh (USD 135.40 million) disbursed in MGNREGS, approximately 70% of the amount i.e. Rs. 61,905 lakh (USD 93.70 million) was disbursed through India Post. To facilitate payment of such large amounts, India Post has developed technology-enabled systems for payment processing, transfer to beneficiary accounts, and withdrawal by beneficiaries, all of which were earlier on manual systems. This blog discusses the manual-to-electronic transition and improvements at India Post in Jharkhand circle; and the benefits it has brought. 
 
In the earlier system, payment orders were prepared manually at each panchayat from where these were forwarded to India Post for manual processing and transfer of the payment to beneficiary accounts. Beneficiary authentication, at the time of withdrawal and payment to beneficiary, were also done manually because the account details were maintained by the post office concerned in a manual ledger. This system was inefficient, as it led to monetary leakages and payment to ghost beneficiaries, in addition to the inevitable delay in payments.
 
To address these issues, the Ministry of Rural Development (MoRD) developed the e-FMS (Electronic Fund Management System). e-FMS serves as an MIS for MGNREGS payments and enables electronic generation of Fund Transfer Order (FTO – i.e., electronic payment order), once work details of individual beneficiaries are entered in the e-FMS at block office. It also enables online transfer of FTO from block office to either a bank or to India Post for payment processing. Further, to synchronise with e-FMS and to reduce manual steps in processing of payment order, India Post enabled electronic processing of FTO in Jharkhand. The payment processing steps are given below:
 

1. CEPT Mysore[2] receives FTOs from MGNREGS block office

2. CEPT sends FTOs to respective HPOs

3. HPOs credit beneficiary accounts

4. HPOs send processed list (i.e., details of credited beneficiary accounts) to CEPT Mysore

5. CEPT Mysore sends processed list to respective SPOs

6. SPOs credit beneficiary accounts (HPOs, SPOs and BPOs are not interconnected, so they manage different databases for customers. HPOs, SPOs and BPOs update their respective customer data bases separately. For this reason, FTOs are routed through all the offices.)[3]

7. SPOs send hard copies of processed list to BPOs

8. BPOs credit beneficiary accounts in a manual ledger.

Even after these changes were effected, transfer of payments to beneficiary accounts took a minimum of 7-8 days from the first step of generating an FTO and sending it from block office to India Post to the eventual credit into the beneficiary account.

Breakthrough

To address the delay in processing of FTO and crediting beneficiary accounts, India Post has rolled out “India Post AEPS” (Aadhaar-Enabled Payment System).[4] In this system, SPO and BPOs are enabled with online front-end devices (tabs, point of sale, and desktops) to carry out beneficiary transactions. 

Further, Head Post Office servers remain in sync with a server installed by the state government, which maintains mirror accounts of beneficiaries of government-sponsored schemes. Front-end devices at SPOs and BPOs are connected with the server installed by the state government. Thus, beneficiary accounts can be synced and updated in front-end devices as soon as the FTO is received at the HPO. The revised FTO processing after AEPS enablement is as follows: 
 
1. CEPT Mysore receives FTOs from MGNREGS block office 
2. CEPT sends FTOs to respective HPOs 
3. HPOs credit beneficiary accounts, i.e., HPO servers are updated
4. HPO servers synchronise beneficiary account data with the state government server
5. State government server synchronises beneficiary account data with front-end devices, which show updated balance in beneficiary accounts at BPOs
 
The Last Hindrance: Liquidity Challenges
India Post AEPS has significantly reduced FTO processing time. Beneficiary accounts are now credited within 3-4 days as against the earlier system that used to take more than a week. With core banking system (CBS) implementation in India Post, processing time will be further reduced to just 1-2 days. However, delays still happen at the Branch Post Office in making payments to beneficiaries due to cash/ liquidity shortages. This is a concern due to: 
 
1. The inability of bank branches at block level to provide sufficient cash to meet the requirements of SPOs – many bank branches are not able to provide cash of more than Rs. 50,000 (USD 757) in a single day. 
 
2. India Post’s procedures limit the amount of cash that can be transferred from SPOs to BPOs to between Rs. 10,000 (USD 151) and Rs. 20,000 (USD 303) at the discretion of the SPO.[5] One SPO typically supervises 5-6 BPOs. Moreover, SPOs are not able to meet the cash requirements of BPOs, given the limited availability of cash from block-level branches (as outlined in 1 above). 
 
3. Cash holding of BPOs in Naxal (left wing extremist)-affected regions is limited to Rs. 5,000 (USD 75).
 
The Department of Information Technology, Government of Jharkhand, commissioned MicroSave to study the existing India Post-AEPS system and cash management practices of India Post for MGNREGS payments in the state and to suggest cash management measures to address the issues. Based on the study, MicroSave recommended the following cash management measures, in addition to transit insurance, to the state government: 
 
1. Availability of Cash: Cash availability could be ensured at SPOs through one of two ways: 
a. Alternative 1: 
i. Once the FTO is received, the HPO can inform the SPOs under its jurisdiction and sponsor bank branch at district level about the cash requirement at SPOs and block-level branches in the next 2-3 days.
ii. On receiving the information from the HPO, the sponsor bank branch at the district level can inform the block-level branches to arrange for cash. 
iii. Thus sponsor bank can ensure the availability of cash at block-level branches when SPO visits the branch to encash the Demand Draft (DD) made by HPO.
 
b. Alternative 2: Where multiple banks are present, HPO can prepare multiple DDs that can be drawn from more than one bank at the block level. So, if, at present, SPO can withdraw only Rs. 50,000 (USD 757) in a single day from one bank, it can withdraw Rs.100,000 (USD 1,515) from two banks, or Rs.150,000 (USD 2,273) from three banks and so on.
 
2. Disbursement of Prescheduled Dates: Disbursement to beneficiaries can be organised on pre-scheduled dates by communicating specific dates to beneficiaries. This would help BPOs that have limited cash available with them for disbursement. This would also reduce rush at BPOs, reduce waiting time for beneficiaries and ensure payment on the same day. However, there is security risk of money being looted while in transit from SPO to BPO, if disbursement dates are communicated in advance. If this is managed well, this approach can be very helpful in areas where security risk is low. 
 
Conclusion 
With these initiatives, turnaround time (TAT) to credit beneficiary accounts has come down from over 20 days to 3-4 days. India Post has also started CBS implantation in the country to cover all HPOs and SPOs. India Post will provide front-end devices to BPOs, which will remain connected with the CBS. These initiatives will bring all the offices of India Post on the same platform to further enhance delivery of G2P and other payments. But, even after such initiatives, cash management will remain a concern. With these initiatives, better cash management practices, recent approval to function as Payment Bank, and the push for Direct Benefit Transfer (DBT), India Post has the potential to become one of the key success stories in India’s drive for financial inclusion.  
 
[1] India Post has three administrative layers at district level, i.e. Head Post Office (HPO) at district, Sub Post Office (SPO) mostly at block, and Branch Post Office (BPO) at panchayat/village level.

[2] Centre for Excellence in Postal Technology (CEPT) Mysore manages back end technology aspects of India Post.

[3] Since the time of this study, India Post has adopted a Core Banking Software (CBS) and will be able to update accounts at all levels simultaneously.

[4] State/India Post utilises SRDH (State Resident Data Hub) database, which is a state-specific copy of Aadhaar database. Payment to beneficiaries is done through Aadhaar-based biometric authentication. 

[5] The standard operating procedure permits Rs. 5,000 as cash holding per BPO. But the limit given does not suffice for the volume of business at the BPOs. Hence, SPO, at its discretion, provides the BPOs with cash over and above to the stipulated limit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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