RBI/2010-11/217
DBOD.No.BL.BC.43 /22.01.009/2010-11
September 28, 2010
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 2010-11, a
discussion paper on engagement of ‘for profit’ companies as BCs was placed on
RBI website on August 2, 2010. Taking into consideration the pros and cons and
based on the feedback received from various quarters, it has been decided to
permit banks to engage companies registered under the Indian Companies Act,
1956, excluding Non Banking Financial Companies (NBFCs), as BCs in addition to
the individuals/entities permitted earlier, subject to compliance with the
guidelines.
2. The existing guidelines for engaging BCs have been reviewed and the revised
guidelines are annexed.
Yours faithfully
(A.K. Khound)
Chief General Manager
Encl: As above
Annex
Guidelines for engaging of Business Correspondents (BCs)
The scheduled commercial banks including Regional Rural Banks (RRBs) and Local
Area Banks (LABs) may engage Business Correspondents (BCs) subject to compliance
with the following guidelines :
1. Introductory
The banks may formulate a policy for engaging Business Correspondents (BCs) with
the approval of their Board of Directors. Due diligence may be carried out on
the individuals/entities to be engaged as BCs prior to their engagement. The due
diligence exercise may, inter alia, cover aspects such as (i) reputation/market
standing, (ii) financial soundness, (iii) management and corporate governance,
(iv) cash handling ability and (v) ability to implement technology solutions in
rendering financial services.
2. Eligible individuals/entities
The banks may engage the following individuals/entities as BC.
- Individuals like retired bank employees, retired teachers, retired government
employees and ex-servicemen, individual owners of kirana / medical /Fair Price
shops, individual Public Call Office (PCO) operators, agents of Small Savings
schemes of Government of India/Insurance Companies, individuals who own Petrol
Pumps, authorized functionaries of well run Self Help Groups (SHGs) which are
linked to banks, any other individual including those operating Common Service
Centres (CSCs);
- NGOs/ MFIs set up under Societies/ Trust Acts and Section 25 Companies ;
- Cooperative Societies registered under Mutually Aided Cooperative Societies
Acts/ Cooperative Societies Acts of States/Multi State Cooperative Societies
Act;
- Post Offices; and
- Companies registered under the Indian Companies Act, 1956 with large and
widespread retail outlets, excluding Non Banking Financial Companies (NBFCs).
3. BC Model
While a BC can be a BC for more than one bank, at the point of customer
interface, a retail outlet or a sub-agent of a BC shall represent and provide
banking services of only one bank. The terms and conditions governing the
contract between the bank and the BC should be carefully defined in written
agreements and subjected to a thorough legal vetting. While drawing up
agreements, banks should strictly adhere to instructions contained in the
guidelines on managing risks and code of conduct in outsourcing of financial
services by banks, issued by Reserve Bank of India on November 3, 2006. The
banks will be fully responsible for the actions of the BCs and their retail
outlets / sub agents.
4. Scope of activities
The scope of activities may include (i) identification of borrowers; (ii)
collection and preliminary processing of loan applications including
verification of primary information/data; (iii) creating awareness about savings
and other products and education and advice on managing money and debt
counselling; (iv) processing and submission of applications to banks; (v)
promoting, nurturing and monitoring of Self Help Groups/ Joint Liability
Groups/Credit Groups/others; (vi) post-sanction monitoring; (vii) follow-up for
recovery, (viii) disbursal of small value credit, (ix) recovery of principal /
collection of interest (x) collection of small value deposits (xi) sale of micro
insurance/ mutual fund products/ pension products/ other third party products
and (xii) receipt and delivery of small value remittances/ other payment
instruments.
The activities to be undertaken by the BCs would be within the normal course of
the bank's banking business, but conducted through the BCs at places other than
the bank premises/ATMs.
5. KYC Norms
KYC and AML procedures, as laid down in the Master Circular DBOD.AML.BC. No.2/
14.01.001/ 2010-11 dated July 1, 2010 and subsequent circulars on the subject
should be followed in all cases. The banks may, if necessary, use the services
of the BC for preliminary work relating to account opening formalities. However,
ensuring compliance with KYC and AML norms under the BC model continues to be
the responsibility of banks.
6. Customer confidentiality
The banks should ensure the preservation and protection of the security and
confidentiality of customer information in the custody or possession of BC.
7. Information Technology Standards
The banks should ensure that equipment and technology used by the BC are of high
standards.
8. Distance Criterion
With a view to ensuring adequate supervision over the operations and activities
of the retail outlet/sub-agent of BCs by banks, every retail outlet/sub-agent of
BC is required to be attached to and be under the oversight of a specific bank
branch designated as the base branch. The distance between the place of business
of a retail outlet/sub-agent of BC and the base branch should ordinarily not
exceed 30 kms in rural, semi-urban and urban areas and 5 kms in metropolitan
centers. In case there is a need to relax the distance criterion, the District
Consultative Committee (DCC)/State level Bankers Committee (SLBC) could consider
and approve relaxation on merits in respect of under-banked areas etc.
9. Payment of commission/fee
The banks may pay reasonable commission/ fee to the BC, the rate and quantum of
which may be reviewed periodically. The agreement with the BC should
specifically prohibit them from charging any fee to the customers directly for
services rendered by them on behalf of the bank. Commission structure or
incentive mechanism should be devised in a manner that mere increase in the
number of clients served or the transaction volume does not drive the
commission. The remuneration should combine fixed and variable parts dependent,
inter-alia, on some indication or measure of customer satisfaction. Some part of
the variable remuneration could be deferred or clawed back in case of deficiency
of service.
The banks (and not BCs) are permitted to collect reasonable service charges from
the customers in a transparent manner.
10. Transactions put through BC
As engagement of intermediaries such as Business Facilitators/ Correspondents
involves significant reputational, legal and operational risks, due
consideration should be given by banks to those risks. The banks should adopt
technology-based solutions for managing the risk, besides increasing the
outreach in a cost effective manner. The transactions should normally be put
through ICT devices (handheld device/mobile phone) that are seamlessly
integrated to the Core Banking Solution (CBS) of the bank. The transactions
should be accounted for on a real time basis and the customers should receive
immediate verification of their transactions through visuals (screen based) or
other means (debit or credit slip).
In formulating their schemes, banks may, inter alia, be guided by the
recommendations made at Chapter III of the Khan Group Report as also the
outsourcing guidelines released by Reserve Bank of India on November 3, 2006
(available on RBI website: www.rbi.org.in). The arrangements with the BC shall
specify:
- suitable limits on cash holding by intermediaries as also limits on
individual customer payments and receipts;
- cash collected from the customer should be acknowledged by issuing a receipt
on behalf of the bank;
- that all off-line transactions are accounted for and reflected in the books
of the bank by the end of the day; and
- all agreements/ contracts with the customer shall clearly specify that the
bank is responsible to the customer for acts of omission and commission of the
BC.
11. Internal Control & Monitoring
The banks should carry out a detailed review of the performance of various BCs
engaged by them at least once in a year and they should monitor the activities
of BCs through their Controlling Offices and also through various fora under
Lead Bank Scheme i.e. (SLBC, DLCC, BLBC). The internal control mechanism in the
bank should include visit to BCs and interface with customers at periodical
intervals.
12. Consumer Protection Measures
The banks should take all measures to protect the interests of the customers.
Some such safeguards are outlined below:
- The retail outlet/sub-agent of the BC should be personally introduced to the
members of public by the bank officials in the presence of village elders and
government functionaries in a public meeting so that there is no
misrepresentation/impersonation.
- The products and processes should be approved by the banks and the company
should not introduce any product/process without the approval of the bank
concerned.
- Each retail outlet/sub-agent may be required to post a signage indicating their
status as service providers for the bank as also disclose the name of the BC,
the telephone number of the base branch/controlling office of the bank and the
Banking Ombudsman and the fees for all services available at the outlet.
- Financial services offered by the retail outlets/sub-agents of the BC should not
be tied to the sale of any product of such company.
- The charges for offering various services should be indicated in a brochure and
made available at the retail outlets/with the sub-agents.
- The banks should develop suitable training modules in the local language(s) in
order to provide proper attitudinal orientation and skills to the
BCs/sub-agents.
- As a measure of social audit, there could be periodic block level meetings where
members of public are invited along with the BCs operating in the area as also
the linked branch managers to express their difficulties and to obtain feedback.
Lead District Manager (LDM) of the lead bank could attend such meetings in the
district to get a direct feedback and provide such feedback to the controlling
offices.
- The bank should have necessary Business Continuity Plan (BCP) in place to ensure
uninterrupted service in case the agency arrangement with the companies/
sub-agents are terminated.
- In case a company is engaged as BC by more than one bank, it should be ensured
that the customer database and account details are kept separate and there is no
co-mingling of data.
13. Redressal of Grievances
The banks should constitute Grievance Redressal Machinery within the bank for
redressing complaints about services rendered by the BCs and give wide publicity
about it through electronic and print media. The name and contact number of
designated Grievance Redressal Officer of the bank should be made known and
widely publicized. The designated officer should ensure that genuine grievances
of customers are redressed promptly. The grievance redressal procedure of the
bank and the time frame fixed for responding to the complaints should be placed
on the bank's website. If a complainant does not get satisfactory response from
the bank within 60 days from the date of his lodging the compliant, he will have
the option to approach the Office of the Banking Ombudsman concerned for
redressal of his grievance/s.
14. Customer Education
Financial literacy and customer education should form an important part of the
business strategy and should form part of the commitment by banks adopting the
BC model.Banks may scale up their efforts substantially towards educating their
clientele in their respective vernacular languages regarding the benefits of
banking habit. 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. The 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.