Indian banks' business correspondent channel set for major overhaul

The rejig of the world's largest field channel of agents is to be based on the findings of a study conducted by the National Institute of Bank Management under the auspices of the central bank

Indian banks' two-decade-old extensive business correspondent (BC) network - the world's largest boots-on-the-ground channel with 2.5 million agents in the field - is all set for a significant overhaul.

 

The rejig will be based on the findings of a study on the BC channel conducted by the National Institute of Bank Management (NIBM).

 

NIBM’s 'Impact assessment study on the services rendered by BC' is expected to provide a comprehensive understanding of the ecosystem, which serves as a critical service provider to rural and remote areas, existing operational challenges, and suggest actionable policy and operational improvements.

 

The NIBM was set up by the Reserve Bank of India (RBI) in 1969.

 

Among the key issues affecting the viability of the BC model are existing compensation modes - both fixed and variable - and the cost effectiveness of BC operations for banks. Other concerns include the attrition rates for BCs and agent certification, skilling and training, the need for a registry, geo-tagging of agents, and a mechanism for redressal of BCs' grievances. 

 

Industry sources say that BCs may now be allowed to combine government payments with insurance so that they can offer a range of both financial and non-financial products and services.

 

According to the RBI’s 'Report on Trend and Progress of Banking in India (FY24)', basic savings bank deposit accounts activated through BCs surpassed those through physical outlets, belying the general perception that deposits are raised primarily through brick-and-mortar branches.

 

The Business Correspondent Resource Council had earlier requested the Parliamentary Committee on Finance to set up a Remuneration Review Committee comprising the Department of Financial Services, RBI, the National Payments Corporation of India, trade bodies, and banks. The industry body had also made a case for a minimum guaranteed commissions in difficult geographies such as the North-Eastern states, hilly terrains, and villages with population under 3,000.

 

It was also suggested that the commission structure be linked to the Consumer Price Index (CPI) to create a transparent and scalable formula for periodic adjustments across services and geographies. Additionally, there is a demand for a minimum fixed allowance /incentive of Rs 5,000 per month for BCs without linking it to account opening and/or transactions.

 

In February this year, the monitoring committee on the functioning of BCs in the department of financial services also discussed digital audit and monitoring of BCs to replace the RBI-mandated periodic physical audit.

 

 

Talking points

 

· Existing compensation mode - both fixed and variable

· Cost effectiveness of BC operations for banks

· Other concerns are BC attrition and agent certification, skilling and training, the need for a registry, geo-tagging of agents

· And a grievances redressal mechanism