RBI allows banks to appoint NBFCs as biz correspondents

Removes norm for attaching outlet to branch for oversight

To hasten financial inclusion, the Reserve Bank has allowed commercial banks to appoint non-banking financial companies (NBFCs) as business correspondents (BCs). Only non-deposit-taking NBFCs will be eligible to act as banks’ BCs, RBI said. It also did away with a rule that made it compulsory for banks to attach each outlet and sub-agent of a BC to a specific branch. Earlier, banks had to assign BC outlets to a branch within 30 km in case of semi-urban and rural areas and five km for metropolitan regions. This was aimed at ensuring adequate supervision for BCs.

On Tuesday, RBI said it had decided to remove the stipulation to provide operational flexibility to banks, as technological developments had made oversight easy.

The review of norms to appoint BCs follows recommendations of a committee headed by RBI board member Nachiket Mor. The committee had suggested steps to accelerate flow of credit to those at the bottom of the pyramid and enlarge catchment areas of BCs. In its bi-monthly review of monetary policy, RBI had said it was considering the recommendations of the Mor committee.

The new flexibility for banks in dealing with BCs comes with riders. RBI said the board-approved policy for engaging with BCs should factor in the objectives of adequate oversight and services to customers. Also, banks will have to ensure bank funds shouldn’t commingle with those of the banking correspondent NBFC. Bank and NBFCs (acting as BCs) should have a specific contractual arrangement to ensure all possible conflicts of interest were adequately taken care of, RBI said.

Banks also have to ensure the non-deposit taking NBFC does not adopt restrictive practices such as offering savings or remittance functions only to its own customers and ensure there is no forced bundling of services offered by the NBFC and the bank.

Banks could continue to take steps to address possible risks to reputation arising out of the appointment and functioning of BCs, RBI said.