Introduction:

• Banking Correspondents (BCs) are individuals/entities engaged by a bank in India (commercial banks, Regional Rural Banks (RRBs) and Local Area Banks (LABs)) for providing banking services in unbanked / under-banked geographical territories. A banking correspondent works as an agent of the bank and substitutes for the brick and mortar branch of the bank.
• Banking correspondents were allowed by RBI vide a circular dated 25 January 2006. The concept of Banking Correspondent stemmed from a report of H R Khan, Dy Governor of RBI. Committee on Financial Inclusion Chaired by Dr. C. Rangarajan which in its report submitted had also recommended for the expansion of the BC model.
• The banks will be fully responsible for the actions of the BCs and their retail outlets / sub agents.

What They Do?

They engage in

• Identification of borrowers;
• Collection and preliminary processing of loan applications including verification of primary information/data;
• Creating awareness about savings and other products and education and advice on managing money and debt counseling;
• Processing and submission of applications to banks;
• Promoting, nurturing and monitoring of Self-Help Groups/ Joint Liability Groups/Credit Groups/others;
• Post-sanction monitoring;
• Follow-up for recovery,
• Disbursal of small value credit,
• Recovery of principal / collection of interest
• Collection of small value deposits
• Sale of micro insurance/ mutual fund products/ pension products/ other third party products and
• Receipt and delivery of small value remittances/ other payment instruments.

Who Are All Eligible to Be Appointed as Banking Correspondent?

• Individuals like retired bank employees, retired teachers, retired government employees and ex-servicemen, individual owners of kirana (small shops) / 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/ Micro Finance Institutions set up under Societies/ Trust Acts or as Section 25 Companies ;
• Cooperative Societies registered under Mutually Aided Cooperative Societies Acts/ Cooperative Societies Acts of States/Multi State Cooperative Societies Act;
• Post Offices;
• Companies registered under the Indian Companies Act, 2013 with large and widespread retail outlets
• Non-banking Finance Companies (NBFCs) were not allowed to be appointed as Business Correspondents (BCs) by banks. However, since June 2014 banks have been permitted to engage non-deposit taking NBFCs (NBFCs-ND) as BCs, subject to certain conditions:
  • A.It should be ensured that there is no comingling of bank funds and those of the NBFC-ND appointed as BC.
  • B.There should be a specific contractual arrangement between the bank and the NBFC-ND to ensure that all possible conflicts of interest are adequately taken care of.
  • C. Banks should ensure that the NBFC-ND does not adopt any restrictive practice such as offering savings or remittance functions only to its own customers and forced bundling of services offered by the NBFC-ND and the bank does not take place.

Challenges and Prospect of Business Correspondents In The Ground:

• Adequate compensation to the Business Correspondents should be ensured for enabling them to provide uninterrupted services particularly in such difficult terrains and remote areas.
• The Business Correspondents should be motivated and regular training programs are to be conducted, so that they may in turn educate the customers.
• Transaction costs needs to be reduced which may be useful for both the Business Correspondents and the customers.
• There are instances, where the Business Correspondents are not available to the customers at their time of need to meet their financial requirements; these customers may approach the private players.
• Business Correspondents should be allowed to increase their transaction limit in remote areas.
• Technology should be upgraded as it is vital for the success of financial inclusion. There are connectivity problems in these areas which need to be addressed. Only the public service provider BSNL has the network connectivity in the remote and hilly areas.
• To increase the reach and penetration of Business Correspondents, they should be equipped with Deposit Taking Machines; ATM Hand held Devices, Kiosk, and Internet Banking etc

Foreign experiences:

• Banking Correspondent in India, in all sense of the term, is equivalent to what is known as “Correspondent Banking” in Brazil (Generally, the term correspondent bank refers to a bank which functions as an agent of another bank in a foreign jurisdiction.
• However, Brazil uses this term for domestic agency services by individuals / entities). In some countries BC model is known as “Agent Banking”.