by the MicroCapital Team - South Asia, East Asia and Pacific -

NEWS WIRE: India: Reserve Bank Working Group Sees Major Role for Branchless “Business Correspondent” Model

Source: Financial Express.

Original article available online.

MUMBAI, August 20 – Assigning higher responsibilities to business correspondents (BCs), the high-powered Reserve Bank of India (RBI) Working Group has noted that BCs should not just be used for opening and servicing no-frills accounts but for the full range of financial activities.

Further, with the central and state governments planning to route various government payments through the banking system, the BCs could be the ideal medium for the banks to handle the huge volumes of low value transactions.

The group is of the view that banks should accept the business correspondent (BC) model as it is extremely vital for achieving the goals of financial inclusion.

“As the traditional ‘brick and mortar’ branches can penetrate into remote areas of our vast country only to a limited extent, this model presents banks with a workable option to provide banking services in hitherto inaccessible areas in a cost-effective manner,” said the RBI panel.

As recommended by the high-power ered committee to review the Lead Bank Scheme in its draft report, the objective of having a banking outlet at every village with a population of over 2,000 at least once a week on a regular basis by March 2011 can be achieved by substantially scaling up the BC model.

As experience showed, the BC model coupled with ICT solutions could help banks substantially increase their outreach facilitating financial inclusion.

The other major recommendations of the working group include measures for improving the long-term viability of the BC model by permitting banks to collect reasonable service charges from the customer in a transparent manner for delivering the services through the BC and handholding of BCs by banks in the initial stages. The Working Group has also suggested some relaxation in the requirement of obtaining ‘no objection’ from DCCs regarding distance criterion.

As regards Common Service Centres (CSCs), the group has recommended that a few pilots should be run in at least a couple of States before deciding on further course of action.

The RBI noted that in order to make the model successful, banks may have to handhold the BCs in the initial years of operations.

“This may even require some financial support from banks, especially when the BCs appointed are individuals. The banks may adopt any permitted entity as its BC and to begin with carry out pilots to ascertain its compatibility to the operations of the bank. The successful model may be replicated,” it said. While adopting technology solutions, it has to be borne in mind that they have to be interoperable, secure and amenable to audit following widely accepted open standards. There is no uniform or unique model ideally suited to the whole country that can be suggested.

Accordingly, banks may choose from the range of available models and adapt any of them depending upon the requirements. Such experimentation is of critical relevance in north eastern region, given its peculiar characteristic features, the RBI noted.

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