Source: BS
Context:
India’s Business Correspondent (BC) network, the world’s largest boots-on-the-ground channel with 2.5 million agents, is set for a significant revamp. The network is critical for delivering banking services to rural and remote areas.
Key Developments:
- The overhaul will be guided by findings from the NIBM study, Impact Assessment Study on the Services Rendered by BCs.
- NIBM (National Institute of Bank Management) was established by the RBI in 1969.
Who Are Business Correspondents (BCs)?
Business Correspondents (BCs) are retail agents appointed by banks to provide banking and financial services in areas where it is not viable for banks to open a full-fledged branch.
They act as representatives of banks and facilitate financial inclusion by delivering basic banking services at the doorstep of customers, especially in rural and remote areas.
Functions of Business Correspondents
BCs provide a range of services on behalf of banks, including:
- Opening of Basic Savings Bank Deposit (BSBD) and PMJDY accounts.
- Facilitating cash deposits, withdrawals, and fund transfers.
- Assisting in Aadhaar seeding and e-KYC verification.
- Disbursing government benefits through Direct Benefit Transfers (DBT).
- Selling insurance, pension, and mutual fund products.
- Providing loan applications, recovery support, and credit counseling.
Regulatory Framework
- The Reserve Bank of India (RBI) regulates BC operations under the Financial Inclusion Plan (FIP).
- Banks are fully responsible for the actions of their BCs, including customer protection and grievance redressal.
- BCs must operate using biometric devices and interoperable digital platforms linked to Core Banking Systems (CBS).
Challenges in the Current BC Model:
- Compensation & Viability:
- Existing fixed and variable remuneration models are inadequate.
- Calls for minimum guaranteed commissions, particularly in difficult geographies (North-East, hilly regions, villages <3,000 population).
- Suggestion to link commission structure to CPI for periodic adjustments.
- Proposal for a minimum fixed allowance/incentive of ₹5,000/month, independent of account openings/transactions.
- Operational Challenges:
- High attrition rates among BCs.
- Need for agent certification, skilling, and training.
- Absence of a comprehensive registry and geo-tagging of agents.
- Lack of a structured grievance redressal mechanism.
- Cost-effectiveness of BC operations for banks under review.
Potential Reforms:
- BCs may be allowed to combine government payments with insurance and other financial/non-financial services, expanding their portfolio.
- Shift from periodic physical audits to digital monitoring for efficiency and real-time oversight.
- NIBM study expected to propose policy and operational improvements to strengthen the ecosystem.
