RBI may introduce licensing regime for corporate business correspondents

Currently, fintechs operating in the segment are not directly regulated by the RBI, with partner banks assuming responsibility for the actions of the companies they contract

The Reserve Bank of India (RBI) is likely to consider introducing a licensing regime for corporate business correspondent (BC) channels, a move that would bring currently unregulated fintech companies operating in the segment under the regulator’s direct oversight, according to three people familiar with the matter.

 

This follows the banking regulator’s observations of stress within the BC ecosystem, including instances of agents flouting direct money transfer (DMT) limits and the unauthorised use of payout application programming interfaces (APIs) by some players, among other concerns. At present, fintech companies operating as corporate BCs are not directly regulated by the RBI. Instead, partner banks are held responsible for the actions of the entities they appoint and contract.

 

“There is some stress in the BC business -- stress related to things such as fraud and money laundering. That requires direct regulation with a licence from the RBI’s view,” said one person with knowledge of the matter. The issue was also discussed at a meeting of the payments industry last month that included regulators and industry participants, according to another source.

 

The RBI did not respond to queries on the matter until press time. People familiar with the discussions added that industry representations have previously been made, seeking authorisation for such companies to operate as regulated entities.

 

“There should be more feature functionality to be brought under the BC umbrella. The corporate BC can be made a regulated entity just like prepaid payment instruments (PPI) and payment aggregators (PA),” said a second source.

 

Currently, some fintechs operating in the segment have secured separate payments licences for transaction-related activities, bringing specific functions under the RBI’s regulatory ambit. These include licences for PPIs and payment aggregators.

 

In recent months, the industry has observed BC network agents breaching DMT limits, which are capped at ₹25,000 per month, with transaction volumes running at multiples of the prescribed threshold. Compounding the issue are challenges related to the misuse of bank-provided APIs, raising concerns around money laundering.

 

“The intent is to bring some harmony and standardisation within the system,” one of the people cited earlier said.

 

Business correspondents are deployed by financial institutions and companies to provide basic banking services in unbanked and remote parts of the country. Services such as deposits, withdrawals and bank account opening are offered through low-cost, technology-driven customer service points spread across India.

 

A licensing framework could also allow existing players to expand the range of products and functionalities they offer. “The moment you bring corporate BCs in as regulated entities, they will be free to roll out products and will only need a sponsor bank for settlement. What happens today is that whatever the sponsor bank wants to deliver is what is pushed by the BC,” one person said.

 

India has more than 2.5 million agents operating on BC networks, making them a critical channel for advancing financial inclusion. 

 

Data shows that during 2023-24, basic savings bank deposit accounts (BSBDAs) opened through bank branches stood at 276.8 million, with deposits amounting to ₹1.46 trillion.

 

By contrast, BSBDAs opened through business correspondents totalled 429 million, with deposits of ₹1.53 trillion.