RBI Working Group says Business Correspondents (BC) Model Vital for Financial Inclusion; suggests New Entities for BC

August 19, 2009:

A Reserve Bank of India Working Group has expressed the view that banks would need to accept the BC model as extremely vital for achieving the goals of financial inclusion. As the traditional ‘brick and mortar’ branches could penetrate into remote areas of the vast country only to a limited extent, this model presented banks with a workable option to provide banking services in inaccessible areas in a cost-effective manner.

Working Group has recommended the following new entities for appointment of Business Correspondents (BCs) for banks in rural and semi-urban areas:

i) Individual kirana/medical/fair price shop owners
ii) Individual Public Call Office (PCO) operators
iii) Agents of Small Savings Schemes of Government of India/Insurance Companies
iv) Individuals who own petrol pumps
v) Retired teachers
vi) Authorised functionaries of well run Self Help Groups (SHGs) linked to banks
vii) Non deposit taking NBFCs (non-banking finance companies) in the nature of loan companies whose micro finance portfolio is not less than 80 per cent of their loan outstanding in the financially excluded districts as identified by the Committee on Financial Inclusion (Chairman: Dr. C. Rangarajan)

The Working Group has noted that BCs should be used not only 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. As experience showed, the BC model coupled with ICT solutions could help banks substantially increase their outreach facilitating financial inclusion.



The Working Group has further opined that as recommended by the High Power 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 2000 at least once a week on a regular basis by March 2011 could be achieved by substantially scaling up the BC model.

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 Working Group has recommended that a few pilots should be run in at least a couple of States before deciding on further course of action.

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