ROLE OF BUSINESS CORRESPONDENTS IN BANKING SECTOR ACTIVITIES K.Subha, Research Scholar, Alagappa Institute of Management, Alagappa University Karaikudi Abstract The RBI has permitted banks to use the services of NGOs / SHGs, MFIs and other civil society organisations as intermediaries in providing financial and banking services through the use of BC Models. The Indian Government servants like postmasters, school teachers, ex-servicemen and ex-bank staff, whose relationship with the banking system through a pension account has already been established and they may be permitted to act as BCs. BC are intermediary for bankers and customers for providing banking services. This paper mainly focuses on role of BC in India. Keywords: Financial Inclusion, BC/BF, Commercial Banks INTRODUCTION Since 2006, the RBI has permitted banks to engage Business Correspondents (BC) and Business Facilitators (BF) as intermediates for providing banking services. According to the guidelines, while the BCs are permitted to carry out transactions on behalf of the banks as agents, the BFs can refer clients, pursue the clients proposal and facilitate the bank to carry out its transactions, but cannot transact on behalf of the bank. They are identified as institutional agents, organizations and other entities for supporting the Bank in extending Financial Services, operating from different locations away from the Bank branches. Objectives of the study 1. To explain the role of Business Correspondents in banking sector activities. 2. To explore the achievement of BCs. 3. To measure and monitor the BCs. Methodology The secondary data for the present study were collected from books, journals, project reports, magazines and internet sources. In addition to these, data were collected from the annual reports of the RBI, Commercial Banks report, and other banks and Financial Institutions. Scope of BC Page 1
Under this model, the user is required to open account with a Bank and franchised to BC for the purpose of extending approved services. The scope of the activities to be undertaken by the BCs include 1. Collection of small amount of deposits / Disbursal of small amount of credit 2. Recovery of principal / collection of interest 3. Sale of micro insurance/mutual fund products/pension products/other third party products and receipt and delivery of small amount of remittances Technology plays an important role to establish link between the Users, BCs and Banks for seamless operations duly protecting the interest of all the concerned. Many organized players are entering into this area and showing keen interest to make the model success by providing the desired services to the Users in a most cost effective and convenient manner using innovative technology applications. Banks have already commenced the process of selection of BCs, however, they are yet to swing into action. The envisaged project paves the way to create ample employment opportunities and a business opportunity to the banks to improve retail accounts. The ability of the banks in positioning the model and the ability of the BCs in adoption of the approach will play key role in making the project a grand success. Banking Channel of BC Banks operate a number of channels through which they deliver financial services: branches, ATMs and the internet are the traditional channels. The BCs option offers a new channel through which banks can extend their services the guidelines are written in a way which requires a bank to be involved and is the ultimate provider of services. While the RBI has oversight and regulatory responsibility for the BC banking channel as part of its regulatory regime, the principal banks are responsible for the acts of their correspondents. This new channel works through a process of collaboration by the bank with one or more partners. These partners often include, Technology Vendors, who provide a range of hardware and processing capacity and connectivity which can link clients to BCs and BCs to the bank. BCs which are organizations or individuals that organize and offer one or more points of transaction outside of bank branches. The BCs organize and manage a network of such transaction points in partnership with a bank. Customer Service Points are individuals, shops or other outlet points which are responsible for the direct contact with the clients. CSPs open bank Page 2
accounts, conduct KYC, cash out withdrawals, receive payments and in some cases, extend credit. For the channel to become financially viable, regulations require that all revenue from the services be collected by the bank. The Tech Vendors, BCs and CSPs are not permitted to charge fees to clients for the services. The bank s revenue may come from the extension of services: accounts, savings, credit and payments. The Bank under contractual relationships then makes payment of service charges to the BCs and Technology Vendors. Figure.1 Banking Channel of BC In order for the BC Channel to work, the bank must work in collaboration with some or all of the different partners who make up the BC Banking channel. It is well understood that all Page 3
the intermediate for bankers and customers of the channel will have to work in cycle, be motivated to participate and receive appropriate revenues in order for the channel. Achievement of Business Correspondents The Business Correspondent (BC) model has been recommended by the RBI to provide an alternative structure to branch-based banking to achieve FI. The BC is an agent authorized to undertake transactions for pre-defined levels of cash on behalf of a specific financial institution. Several MFI, SHG, public and private sector rural banks follow this model to reach out to the geographically diverse population. Agents have the advantage over bank branches as they can deliver doorstep banking across the geographical landscape, overcoming regional barriers of language and culture, and inadequate infrastructure in rural and slums. The BC is increasingly aided by technology enablers such as a point of service handheld devices, mobile phones and a biometric scanner. Although, being a key delivery channel, the agent model has restrictions of scale as well as security. While, technology can improve speed of delivery, security and accuracy, agents will always be restricted by the sheer size of their territory. Challenges of BC Allowing BCs to handle cash is the biggest challenge. Ninety-nine percent of the financial transactions are in cash, warranting high-cost cash-handling operations and added operational risks. Moreover, clients tend to perceive that the BCs are the owners of the transactions and not facilitating them on the banks behalf. Irregularities have been observed in accounting of clients withdrawals and deposits by BCs and as a result there are delays in accounting the banking transactions with the Bank by the BC. Recipients of BC services are mostly illiterate and unfamiliar with technology rendering them susceptible to misguidance by the BCs. BCs staff operates individually without any line supervision, the risk of fraud and misappropriation is higher. There have been instances noted of miscommunication by BCs. Page 4
Failure to account for cash and falsification of records have been noticed and dealt with by banks. Conclusion The BC model is a infancy. The different experiments being tried out enhance the understanding and the skill sets of the sector to make the model a viable and feasible instrument of increasing financial services outreach. The regulatory stance is to learn from ongoing implementation and incrementally remove hindrances as is seen in the recent relaxation of distance norms for BCs operations. BC allows the banks employee to establish a direct link write customers. It had helped in handling large volume of banking customers, and it also ensured improved economical level and reduced transaction costs. References 1. Dinesh Borse and D.M. Gujarathi, Analysis Of Various Initiatives on Financial Inclusion, National Monthly Refereed Journal Research In Commerce & Management, Vol.1, No.7, ISSN 2277-1166, 2012, P.82 2. Indian Overseas Bank, Financial Literacy Programme: An IOB Initiative, 6, September. 2011. P.5. 3. Balbir, Financial Inclusion- Role of Banking Industry, The management Accounting, January 2014, PP. 24-25. 4. https://www.rbi.org.in/ Page 5