Concept of Business Correspondents

In 2000, a roadmap had been drawn to provide banking services in every village with population above 2000 by March 31, 2012. In 2006, the Reserve Bank of India allowed banks to use non-bank intermediaries as business correspondents to extend banking and other financial services to areas where the banks did not have a brick and mortar branch present.

Objective

The objective was to aid the process of financial inclusion and consequently take banking to the remotest areas of the country and make them bankable. So far, banks have covered 74, 199 (99.7 percent) out of 74,414 such villages.

Who is a Business Correspondent?

The business correspondent is nothing but a bank-in-person, who is authorised to collect small ticket deposits and extend small credit on behalf of the banks. A BC also does the following activities:

• Recovering the principal interest of small value deposits
• Sale of micro insurance products
• Selling mutual fund products
• Selling Pension products
• Receipt and delivery of small value remittances/other payment instruments.

Are Individuals only allowed to work as Business Correspondents?

No. In fact, Reserve Bank has allowed an array of entities to work as BCs. These include:

• NGOs
• Micro-finance Institutions set up under Societies/Trust Acts
• Societies registered under Mutually-Aided Co-operative Societies Acts, or the Co-operative Societies Acts of States
• Companies in which NBFCs, banks, telecom companies and other corporate entities or their holding companies do not have equity holdings in excess of 10%

Individuals such as Post offices and retired bank employees, ex-servicemen and retired government employees.

Can Business Correspondents work only for a single bank?

No. The Reserve Bank of India (RBI) has permitted all business correspondents (BCs) or representative of any one particular bank to conduct business for other banks as well. This so called “interoperability” system has been allowed at the retail outlets which is the point of customer interface. Business correspondent authorised by a bank would now be able to offer services like cash transactions to customers of other banks if the lender doesn’t have a branch of the same bank.

What are the Ultra Small Branches, which were making news recently?

In the Budget speech of 2012-13, the Finance Minister stated that Ultra Small Branches are being set up at small habitations where Business Correspondents (BCs) would deal with cash transactions.

Accordingly , RBI directed the banks that they may establish outlets in rural centres from which BCs may operate.

These BC outlets may be in the form of low cost simple brick and mortar structures. Since, every BC is attached to and is under the oversight of a base branch; the base branch will have to provide oversight to the BC outlets which will include periodic visits by officers of the base branch to these outlets as well as to other places of functioning of BCs.

The RBI in its April 2012 Monetary policy said that quality services can be provided via ICT (Information & Communication Technology) based delivery model. So, it was stipulated that it would be necessary to have an intermediate brick and mortar structure (Ultra Small Branch) between the present base branch and BC locations so as to provide support to a cluster of BC units at a reasonable distance.

These Ultra Small Branches may be set up between the base branch and BC locations so as to provide support to about 8-10 BC Units at a reasonable distance of 3-4 kilometres. These could be either newly set up or by conversion of the BC outlets. Such Ultra Small Branches should have minimum infrastructure such as a Core Banking Solution (CBS) terminal linked to a pass book printer and a safe for cash retention for operating large customer transaction and would have to be managed full time by bank officers/ employees. This arrangement would lead to efficiency in cash management, documentation, redressal of customer grievances and close supervision of BC operations.

What is the recent Decision of RBI on Mobile Wallets and BC?

Recently RBI said that the mobile telephone operators cannot be permitted to provide a cash-out facility from virtual wallets to customers, as such an activity would amount to ‘bypass banking’. However, they could do so if they acted as a business correspondent (BC) to a bank. This development was a reaction to the recently launched m-wallet service by Airtel whereby, a customer is enabled to make utility payments and transfer money from one user to another. The norms are as follows:

Mobile transactions are permitted only if attached to a specific use, such as paying electricity bills or shopping at retail establishments that accept mobile payments. RBI does not allow encashment of the balance available in mobile wallets, though mobile operators are reported to have requested the banking regulator to allow them to provide a cash-out facility to their customers.

Security, privacy and acceptability are other obstacles in the way of moving towards mobile payments.

Bankers feel the regulator may consider allowing issuance of mobile wallets by business correspondents without the need of a Know Your Customer exercise