RBI/2009-10/238
DBOD.No.BL.BC. 63 /22.01.009/2009-10
November 30, 2009
All Commercial Banks (including RRBs and LABs)
Dear Sir
Financial Inclusion by Extension of Banking Services – Use of Business
Correspondents (BCs)
As announced in the Annual Policy Statement for the year 2009-10, a Working
Group was constituted by Reserve Bank of India to examine the experience to date
of the Business Correspondent (BC) model and suggest measures, to enlarge the
category of persons that can act as BCs, keeping in view the regulatory and
supervisory framework and consumer protection issues. The Working Group has
submitted its report which has been placed on the Bank’s website on August 19,
2009. The recommendations of the working group have since been accepted by
Reserve Bank of India with slight modifications. Accordingly, banks are advised
to take necessary action for implementing the various recommendations of the
Working Group as indicated in the
Annex.
- Banks are permitted to appoint the following entities as BCs, in addition to
the entities presently permitted: (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 and (vi) Authorised functionaries of well
run Self Help Groups (SHGs) linked to banks.
- With a view to ensuring the viability of the BC model, banks (and not BCs)
are permitted to collect reasonable service charges from the customer, in a
transparent manner under a Board-approved policy. Considering the profile of the
clientele to whom banking services are being delivered through the BC model,
banks should ensure that the service charges/fees collected from the customer
for delivery of banking services through the BC model is not only fair and
reasonable but also seen to be so. A copy of the Board-approved policy in this
regard may be forwarded to us (The Chief General Manager-in-charge, Reserve Bank
of India, Department of Banking Operations and Development, Central Office,
World Trade Centre, Centre -1, Cuffe Parade, Colaba, Mumbai – 400 005 in the
case of Scheduled Commercial Banks and LABs and The Chief General Manager,
Reserve Bank of India, Rural Planning and Credit Department, Central Office,
Central Office Building, 10th Floor, Shahid Bhagat Singh Marg, Mumbai – 400 001
in the case of RRBs). Banks should in particular ensure that there are no
complaints from the customer about the charges being non-transparent/not
reasonable. Any unfair practices adopted by banks in this regard would be viewed
seriously by Reserve Bank of India.
- With the inclusion of the above entities, it is estimated that there will be
substantial addition to the available universe of BCs. Keeping in view the
operational and other risks implied, banks are advised to ensure that they carry
out suitable due diligence in respect of the entities proposed to be appointed
as BCs and also institute additional safeguards as may be considered appropriate
to minimise the agency risks. ICT solutions that ensure proper authentication
and other security measures may be adopted to minimise the risk while upscaling
the model as already advised. Further, banks may ensure that while appointing
the above entities as BCs, the fundamental principle that the individuals are
residents of the area in which they propose to operate as BCs, stands fulfilled.
- As regards the North Eastern Region, it has been decided to implement the
recommendation made by the Committee on Financial Sector Plan (CFSP) for the
North Eastern Region(Chairperson: Smt. Usha Thorat) regarding the entities which
can be appointed as BCs in the North Eastern Region. Accordingly, where a local
organization/association not falling under any of the forms of organizations
listed in the Reserve Bank guidelines is proposed to be appointed by a bank as
Business Correspondent after due diligence and is recommended by the DCC for
being approved as Business Correspondent, the same would be considered by the
Regional Office of the Reserve Bank for granting suitable exemption from the
Reserve Bank guidelines for appointing such entities as BCs. Banks may therefore
approach the Regional Director of the Reserve Bank at Guwahati for the purpose.
- Further, banks are also permitted to allow, with suitable and adequate
safeguards, the BCs in the North Eastern Region to account for the transactions
in the bank’s books latest by the end of the second working day from the date of
the transaction.
- Regarding cases referred to DCCs for relaxation of criteria in respect of the
maximum distance between the place of business of the BC and the base branch,
the DCCs may give their decision at the earliest, and in any case within a
period of three months, from the date of reference to them. In case no decision
is conveyed by DCCs within this period, the banks are permitted to treat it as a
‘no objection’ for relaxation of the distance criterion.
Yours faithfully
(P.Vijaya Bhaskar)
Chief General Manager-in-charge
Encl: as stated above
Action required to be taken by banks based on the recommendations of the Working
Group to Review the Business Correspondent Model
Sl.No. |
Recommendation of the Working Group |
Action required to be taken by banks |
1 |
Realising the full potential of the BC model
Given the right impetus, the BC model has the potential to speed up the
process of financial inclusion in the country and bring the vast
majority of population within the banking fold. The Group recognises the
fact that the process of financial inclusion involves the three critical
aspects of (a) access to banking markets, (b) access to credit markets
and (c) financial education. The BC model should, therefore, encompass
each of the above three aspects in order to be able to address the issue
of financial inclusion in a holistic manner. The full scope of the model
can be realised not just by opening no-frills accounts but by
synthesising the above three aspects as integral components of the
model. Towards this end, there should be proper understanding and
appreciation of the BC model by all stakeholders, in particular, by
banks. Banks need to appreciate the benefits arising out of adopting the
‘branchless’ BC model and implement the same with missionary zeal so as
to achieve the ultimate goal of financial inclusion. (Paragraph 3.20) |
Banks to implement the Business Correspondent model
to achieve greater penetration of banking services. |
2 |
Cash handling
Banks could think in terms of streamlining cash management by adopting
‘Cash Routes’ (linking various BCs which are in close proximity to each
other to a base branch) wherever warranted with suitable cash transit
insurance to be borne by the banks. (Paragraph 3.22) |
For streamlining cash management, banks may consider
adopting ‘Cash Routes’ linking various BCs which are in close proximity
to each other to a base branch) wherever warranted with suitable cash
transit insurance. |
3 |
Financial Education and Consumer Protection
(i) Banks need to scale up their efforts substantially towards educating
the clientele in their respective vernacular languages regarding the
benefits of banking habit. For this purpose, extending necessary
financial support from the Financial Inclusion Fund administered by
NABARD may be considered. (Paragraph 3.23)
(ii) Information regarding BCs engaged by banks may be placed on the
banks’ websites. The Annual Reports of banks should also include the
progress in respect of extending banking services through the BC model
and the initiatives taken by banks in this regard. Banks may also use
print and electronic media (including in the vernacular language) to
give wide publicity about implementation of BC model by them. (Paragraph
3.24)
(iii) The banks may educate their customers through various means –
print, electronic, etc. - the role of the BC and their obligation
towards the customers, in the vernacular language. (Paragraph 3.25)
(iv) The banks need to ensure the preservation and protection of the
security and confidentiality of customer information in the custody or
possession of the BCs. (Paragraph 3.26)
(v) Banks may put in an appropriate grievance redressal mechanism, which
should be widely publicised and also placed in public domain. The
details of the grievance redressal officer should be displayed at the
premises of the BC as also at the base branch and made available by the
bank/BC at the request of the customer.(Paragraph 3.27) |
(i) Banks may scale up their efforts substantially
towards educating their clientele in their respective vernacular
languages regarding the benefits of banking habit.
(ii) Information regarding BCs engaged by banks may be placed on the
respective banks’ websites. The Annual Report of the banks should also
include the progress in respect of extending banking services through
the BC model and the initiatives taken by banks in this regard. Banks
may also use print and electronic media(including in the vernacular
language) to give wide publicity about implementation of the BC model by
them.
(iii) Banks may educate their customers through various means – print,
electronic etc., - the role of the BC and their obligation towards the
customers, in the vernacular language.
(iv) Banks should ensure the preservation and protection of the security
and confidentiality of the customer information in the custody or
possession of the BCs.
(v) Banks may put in place an appropriate grievance redressal mechanism,
which should be widely publicised and also placed in public domain. The
details of the grievance redressal officer should be displayed at the
premises of the BC as also at the base branch and made available by the
bank/BC at the request of the customer. |
4 |
Ensuring viability of BC model
(i) The BC model can succeed only if the banks own up the BCs as their
agents. Banks may need to have a relook at the compensation structure
for BCs. (Paragraph 3.28)
(ii)The range of services to be delivered through the BC should be
ramped up to include suitable small savings, micro-credit,
micro-insurance, small value remittances etc. (Paragraph 3.29)
(iii) Banks may be permitted to collect reasonable service charges from
the customer, in a transparent manner, for delivering services through
the BC model. Suitable guidelines may be issued by RBI in this regard,
especially keeping in view the profile of customers using these
services. (Paragraph 3.30).
(iv) Banks may bear the initial set up cost of the BCs and extend a
handholding support to the BCs, at least during the initial stages.
Banks may also need to bear the costs relating to transit insurance of
the cash handled by BCs. (Paragraph 3.31)
(v) In order to improve the viability of the BC model, banks may
consider providing reasonable temporary overdrafts to the BCs free of
interest charges. (Paragraph 3.32) |
(i) Banks may have a relook at the compensation
structure for BCs to effectively ramp up the use of the BC scheme for
banking penetration.
(ii) Banks may ramp up the range of services to be delivered through the
BC model to include suitable small savings, micro-credit,
micro-insurance, small value remittances etc.,
Please see paragraph 3 of the Circular.
(iv) Banks may consider bearing the initial set up cost and other costs
of the BCs and extend a handholding support to the BCs, at least during
the initial stages.
(v) Banks may consider providing reasonable temporary overdrafts to the
BCs. |
5 |
Risk Mitigation Measures
To address the various risks involved in rendering banking services
through the BC model, banks need to put in place suitable and adequate
risk mitigation measures. Further, banks may be guided by the
instructions contained in the guidelines on ‘ Outsourcing of Financial
Services’ issued by RBI on November 3, 2006, as relevant, while
implementing the BC model.(Paragraph 3.35) |
Banks may put in place suitable and adequate risk
mitigation measures to address the various risks involved in rendering
banking services through the BC model. Banks may also be guided by the
instructions contained in the guidelines on ‘Outsourcing of Financial
Services’ issued by RBI on November 3, 2006, as relevant while
implementing the BC model. |
6 |
Adoption of appropriate technology
Banks may adhere to the RBI guidelines on adoption of appropriate
technology while implementing the BC model. (Paragraph 3.37) |
Banks may adhere to the extant RBI guidelines on
adoption of appropriate technology as contained in the circular
DBOD.No.Leg.BC./ 94/09.07.005/2006-07 dated May 7, 2007, while
implementing the BC model. |
7 |
Training for the BCs
Banks may also develop suitable training modules in the local
language/s, in order to provide proper attitudinal orientation and
skills to the BCs. Indian Institute of Banking & Finance(IIBF)has
already developed training modules for BCs. These modules may be
translated in vernacular languages and leveraged extensively so as to
reach a wider group. (Paragraph 3.38) |
Banks may develop suitable training modules in the
local language/s, in order to provide proper attitudinal orientation and
skills to the BCs. |
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