MICROCAPITAL BRIEF: Reserve Bank of India (RBI), in Move to Expand Rural Financial Access, Updates Guidelines to Allow Individuals, Nonprofits and Corporations—But Not Microfinance Institutions—to Serve as Business Correspondents for Banks

The Reserve Bank of India (RBI), India’s central banking authority, recently announced that it has updated guidelines so that “individuals, non-governmental organizations, cooperative societies, post offices and companies with ‘large and widespread retail outlets'” may serve as business correspondents (BCs). These individuals and organizations, serving as rural BCs, will be permitted to “raise deposits; disburse tiny loans; recover bad loans; sell micro insurance, mutual funds, pension products and other third-party products; and receive and deliver small value remittances” [1].

RBI mandates that no BC should be situated more than 30 kilometers from a base bank branch. This will limit the impact of the move as just 5.2 percent of the country’s 650,000 total villages are home to banking branches [1]. RBI will not permit representatives of non-banking financial companies, including microfinance institutions, to serve as BCs.

On the other hand, RBI representatives recently made comments indicating the RBI may soon allow microfinance institutions to acquire banking licenses and accept deposits [2].

By Lindsey Shaughnessy, Research Associate

About the Reserve Bank of India (RBI): The Reserve Bank of India (RBI) is India’s central banking authority. Established in 1935, the RBI undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. RBI operates twenty-two regional offices as of 2010.

Sources and Additional Resources:

[1] The Wall Street Journal/LiveMint, “RBI permits corporations to work as rural agents of banks”, September 29, 2010. http://www.livemint.com/2010/09/28214729/RBI-permits-corporations-to-wo.html?atype=tp

[2] MICROCAPITAL BRIEF: “Reserve Bank of India (RBI) May Allow Microfinance Institutions (MFIs) to Acquire Banking Licenses, Accept Deposits”, October 5, 2010. https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-may-allow-microfinance-institutions-mfis-to-acquire-banking-licenses-accept-deposits/

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