The Reserve Bank of India (RBI) has envisioned the financial inclusion plan which aims to provide easy access to affordable financial products and services for the economically weaker sections and lower income groups in the country. It initiated the Business Correspondent Model in 2006. Under this framework, Business Correspondents (BCs) are authorised as third party agents by banks and deliver banking and financial services on behalf of the banks. For their services, Business Correspondents also receive commission from these banks. Business Correspondents have a pivotal role to play as they bring vital banking facilities to the financially-excluded members of the society in far-flung areas where banks do not have presence. The Business correspondent model is actually a partnership model wherein each partner has a specific role to play.

With its noteworthy contributions in the Indian e-governance segment, Alankit Limited has excelled in ensuring speedy delivery of last mile banking and mainstream financial services across India especially villages and rural areas. The company has collaborated with leading public sector banks namely State Bank of India (SBI) and Bank of Baroda for setting-up Kiosk Banking outlets across cities.

Business correspondents areengaged by banks as retail agents to offer banking services their customers. Hence, they are instrumental in growing the outreach of banks through Kiosk Banking facilities where services & products are available at affordable cost. The Kiosk outlets are internet-enabled and serve as a convenient platform for availing basic services that would include opening a no-frills account with no minimum balance, transactions within Rs 10,000 per day, and small value deposits along with products like pension products, other third party products, etc. While the customers are guaranteed a secure and hassle-free banking experience through these kiosks operated by business correspondents, there are also some advantages for these retail agents as well in terms of good incentives.

Understanding Commission Model

Business Correspondents function on the basis of a commission model. They receive a commission from the bank for the services rendered by them like each new account opened for customers, money transfer transaction or new loans disbursed. According to the RBI, the banks shall pay reasonable commission to their BCs. And, the rate and quantum of the commissionmay be reviewed periodically. While the BCs are strictly prohibited from chargingany fee from the customers for their service, the banks are entitled to levy reasonable service charges from their customers in atransparent manner.

As per RBI, the commission structure or incentive mechanism is designed in a way that a mere rise in the number of customers served or the transaction volume does not drive the commission. The remuneration shall combine fixed and variable parts dependent, among other things, on certain indication or customer satisfaction index. Some portion of the variable remuneration could be deferred or taken back if case of deficiency of service.

Business Correspondent Roles and Responsibilities

Business Correspondents ensure the delivery of last mile banking services to millions of customers on behalf of the banks. The activities that are executed by them shall be within the normal course of the banking business of the concerned bank, but carried out through and by the entities at places other than the Bank’s premises. With regards to all such transactions, the Business Correspondent, his or her agent shall be authorised to accept or deliver cash either at his place of work, or any suitable location subject to the ceilings per day / per customer as specified. The BCs are linked to the nearby branch of bank (also known as base Branch).

A Business Correspondent could serve as a BC for more than one bank, at the point of customer interface, the retail outlet or sub-agent of BC should represent and deliver banking services of only one particular bank. The terms and conditions governing the contractbetween the bank and the BC must be carefully defined in written agreements and subjected to thorough legal vetting. The Business Correspondent should adhere to the instructions specified in the contract. Furthermore, Business Correspondents are responsible for executing a gamut of functions which have been explained below:

Attracting new customers:

  • By identifying prospective customers for the bank, the business correspondents engage in generating awareness among customers on the available saving options and other financial products of the bank.
  • They are responsible for educating and advising their customers on managing money, debt counselling as well as recommending small loans to target customers.
  • The scope of work for BC also includes promoting, nurturing and monitoring of Self Help Groups/ Joint Liability Groups/Credit Groups/others.

Delivering products & services:

  • Business correspondents execute the task of collecting and handling preliminary processing of various formsfor deposits that involves verification of primary information/ data.
  • They are accountable for enrolling the customers for various financial products. This also involves filling various applications or account opening forms including nomination clause and submission to the bank.
  • When opening a bank account for their customers, Business correspondents also complete the entire ‘know your customer’ (KYC) process as part of the opening formalities involving collection of vital customer information from time to time.
  • The process of opening of no frill deposit accounts and other products as permitted from time to time by leveraging technology is managed by the Business correspondents.
  • They are authorised to provide mini account statements and other account related information, for a minimum period of 3 months to their customers.
  • In addition, they also deliver any other service on behalf of the Bank, duly authorized by the appropriate authority.
  • Besides, cross-selling micro insurance, Business correspondents also promote products through kiosk banking facilities including mutual fund products, pension products and other such third party products.

Disbursing and Collection:

  • The business correspondents handle the task of collection and payment of small value deposits and (cash) withdrawals the maximum value of which is Rs. 2000/- per transaction while there is no minimum limit.
  • Business correspondents are accountable for handling receipt and delivery of small value remittances/ other payment instruments.
  • They are responsible for disbursing small loans like entrepreneurial loans, agricultural loans,group loans, etc. depending on the partner banks guidelines.
  • Their responsibility also includes collection of payment and fees from customersas per partner banks guidelines.
  • For loan products, they help with collection of principaland interest complying strictly by code of conduct.
  • After the loans are sanctioned, the task of monitoring is also undertaken by the business correspondents.

Other important responsibilities:

  • For those customers who wish to close their bank accounts, the Business correspondents undertake the accountability to inform the local branch or the centralized hub of Bank/ NBFC about such closure of accounts.
  • Upon the death of the bank account holder, business correspondents ensure to inform the bank about deactivation of the account.
  • They also consider any risk associated with handling of cash at ground level and take suitable measures to ensure security.
  • Asintermediaries of the banks, business correspondents ensure the confidentiality of vital customer information.
  • For delivery banking services, BCs are authorised to use the equipment and technology as assigned by the banks and are responsible for efficiently using them.

Eligibility Criteria for Business Correspondent

As per the guidelines of RBI, banks are allowed to engage individuals and entities as their business correspondents only if they comply with the eligibility criteria. The individuals who are allowed to serve as business correspondents include:

  • Retired bank employees, retired government employees and ex-servicemen and retired teachers
  • 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
  • Those 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)

The following entities are allowed to become authorised business correspondents of banks:

  • NGOs/ MFIs established under Societies/ Trust Acts
  • Section 25 Companies which are standalone entities, or in which NBFCs, banks, telecom companies and other corporate entities or their holding companies did not have equity holdings in excess of 10 per cent
  • Cooperative Societies which are registered under Mutually Aided Cooperative Societies Acts/ Cooperative Societies Acts of States/Multi State Cooperative Societies Act
  • Post Offices
  • Companies that are registered under the Indian Companies Act, 1956 with large and widespread retail outlets, excluding Non-Banking Financial Companies (NBFCs).

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