Context:
The Department of Financial Services (DFS) has called a meeting of the monitoring committee on the functioning of business correspondents (BCs)
Business Correspondent (BC)
A Business Correspondent (BC) is a representative of the bank, who offers banking services to people in the unorganized sectors. BCs are an important constituent of financial inclusion, which means making banking accessible to everyone.
- What does a BC do?
- Open a person’s bank account, Process a loan application, Deposit money and withdraw money, and many other financial services.
- How does a BC function?
- BCs make use of the mobile phone in the facilitation of the services provided by a bank
- A customer may make a transaction after he/she makes an electronic signature and/or thumb impression.
- For each transaction the BC completes, it is compensated.
- Why do BCs matter?
- BCs can facilitate a bank’s penetration of previously unreachable locations.
- BCs enable low-cost delivery of banking services.
Key Agenda Items:
- Review of outdated commission rates, which have not been adjusted for inflation or rising operational costs.
- Discussion on the waiver of penalties for BCs to ease financial burdens.
- Exploration of creating an infrastructure and equity fund for corporate BCs.
Scrutiny of C. S. Setty Report (December 2022)
- Enhancement in BCs service portfolios, Commission-Sharing structure which should be more transparent and non-biased, Rebalance Commission rates to regions, Group BCs under various heads as per the service capabilities, Improvement in the Financial Liquidity issues of BCs
Issues in Business Correspondent (BC)
- Static Commission Rates:
- The BC profitability gets impacted, mainly in rural and semi-urban areas.
- High Attrition:
- BCs have a very high attrition rate due to low commissions and operational demands.
- Limited Value-Added Services:
- BCs operate mostly on cash-in, cash-out operations and get limited training to offer more financial products.
Capacity-Building and Governance
- Need better training of the field staff and development of a larger pool of skilled trainers.
- Increase in Digital Banking Units (DBUs)
Source: Business Standard
