As a part of its financial inclusion plan, the RBI started the Business Correspondent model in 2006. Business Correspondents (BCs) are representatives appointed by banks to act as their agent. BC’s provide banking services in remote locations where the bank may not have a presence. Till 2-3 years back it was very difficult for poor villagers to open a bank account because of legal and administrative hassles. Moreover many remote villages do not have bank branches.
Business Correspondent companies open small offices in remote villages, and in partnership with a bank, help poor villagers to open bank account, take a loan or to transfer money. Business correspondent model is therefore a partnership model. However, each of the partners have different roles and responsibilities. In this article, I have discussed Business Correspondent Roles and Responsibilities.
As per RBI:
- Business Correspondents are retail agents engaged by banks for providing banking services at locations other than a bank branch/ATM.
- Banks are required to take full responsibility for the acts of omission and commission of the BCs that they engage.
- BCs enable a bank to expand its outreach and offer limited range of banking services at low cost, as setting up a brick and mortar branch may not be viable in all cases.
- BCs, thus, are an integral part of a business strategy for achieving greater financial inclusion.
As per State Bank of India: “The BC arrangement essentially means enrolling customers and enabling the transactions of the customers at the Customer Service Points (CSPs) besides sourcing various deposit and loan products for the Bank as a Business Facilitator.”
Business Correspondents work on commission model. They will get from bank a commission for every new account opened, for money transfer transactions or for new loans disbursed. It is a volumes-game for BC companies. As per RBI
- the banks may pay reasonable commission/ fee to the BC, the rate and quantum of which may be reviewed periodically
- BC are specifically prohibited from charging any fee to the customers directly for services rendered by them on behalf of the bank.
- Commission structure or incentive mechanism should be devised in a manner that mere increase in the number of clients served or the transaction volume does not drive the commission.
Eligibility Criteria for Business Correspondent
As per RBI, banks may engage the following individuals/entities as BC:
- retired bank employees
- retired teachers
- retired government employees
- 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
- individuals 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)
- NGOs/ MFIs set up under Societies/ Trust Acts and Section 25 Companies
- Cooperative Societies registered under Mutually Aided Cooperative Societies Acts (MACS)
- Cooperative Societies Acts of States
- Multi State Cooperative Societies Act
- Post Offices
- Companies registered under the Indian Companies Act, 1956 with large and widespread retail outlets
- non-deposit taking NBFC (NBFCs-ND)
Business Correspondent Roles and Responsibilities – Awareness and Financial Literacy
BCs are to create awareness about savings and other products and provide education and advice on managing money and debt counselling.
- A BC must create awareness of financial options among villagers, even before they start with products.
- They should tell the poor people how best to save,invest and get loans.
- Then they must explain the partner banks’s suitable products for the villagers needs.
As per Reserve Bank of India (RBI): “Financial literacy and customer education should form an important part of the business strategy and should form part of the commitment by banks adopting the BC model. Banks may scale up their efforts substantially towards educating their clientele in their respective vernacular languages regarding the benefits of banking habit. Information regarding BCs engaged by banks may be placed on the respective banks’ websites. The Annual Report of the banks should also include the progress in respect of extending banking services through the BC model and the initiatives taken by banks in this regard. The banks may also use print and electronic media (including in the vernacular language) to give wide publicity about implementation of the BC model by them.”
Business Correspondent Roles and Responsibilities – Eligibility and Enrollment of New Customers
A BC must collect and process initial loan applications including verification of primary information/data.
- A Business Correspondent company must identify prospective customers for various financial products offered by Bank.
- The BC must verify the eligibility of customers for the Financial Products based on the eligibility criteria provided by Bank from time to time.
- The BC company will enroll target customers for various Financial Products on behalf of his partner bank.
- The Business Correspondent will only sell the Financial Products to eligible customers based on the partner Bank’s guidelines.
- The BC will recommend small loans to target customers.
- BC will help bank in collecting KYC information (Know Your Customer) information from time to time.
With regards to KYC, the RBI state: “KYC and AML procedures, as laid down in the Master Circular DBOD.AML.BC. No.2/ 14.01.001/ 2010-11 dated July 1, 2010 and subsequent circulars on the subject should be followed in all cases. The banks may, if necessary, use the services of the BC for preliminary work relating to account opening formalities. However, ensuring compliance with KYC and AML norms under the BC model continues to be the responsibility of banks.”
Business Correspondent Roles and Responsibilities – Disbursing and Collection
- The BC will disburse small loans, such as agricultural loans, group loans, entrepreneurial loans etc based on the partner banks guidelines.
- The Business Correspondent collect payment and fees from Customers as per partner banks guidelines.
- For a loan product, BS will help with collection of principal and interest abiding strictly by code of conduct.
- Post-sanction monitoring to be done by BC.
- BCs to do collection of small value deposits.
- Receipt and delivery of small value remittances/ other payment instruments to be done by BC.
Business Correspondent Roles and Responsibilities – Others
- A BC may cross-sell micro insurance, mutual fund products, pension products and other suitable third party products.
- BC will be involved in cash handling in terms agreeable to partner bank.
- BC has to inform the local branch/ centralized hub of Bank/ NBFC about the closure of any accounts.
- On the death of account holder, BC must inform the bank about deactivation of the account.
- A Business Correspondent assumes all the risk associated with handling of cash at ground level.
List of Circulars issued by the RBI to Scheduled Commercial Banks (including RRBs) on use of BCs:
- DBOD.No. BL.BC. 58/22.01.001/2005-06 dated January 25, 2006
- DBOD.No. BL.BC. 72/22.01.009/2005-06 dated March 22, 2006
- DBOD.No.BP.40/21.04.158/2006-07dated November 3, 2006
- DBOD.No. BL.BC.74/22.01.009/2007-08 dated April 24, 2008
- DBOD. No. BL.BC.35/22.01.009/2008-09 dated August 27, 2008
- DBOD.No.BL.BC.36/22.01.009/2008-09 dated August 27, 2008
- DBOD.No. BL.BC.129/22.01.009/2008-09 dated April 24, 2009
- DBOD. No. BL.BC.63/22.01.009/2009-10 dated November 30, 2009
- DBOD. No. BL.BC.99/22.01.009/2009-10 dated April 26, 2010
- DBOD.No.BAPD.BC.122/22.01.009/2013-14 dated June 24, 2014
- Financial Inclusion by Extension of Banking Services – Use of Business Correspondents (BCs)
- Discussion Paper on Engagement of ‘for-profit’ Companies as Business Correspondents
- Business Correspondent (BC) Arrangement
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A Few Last Words
Before making any investment decision, please contact your financial adviser.
I have provided this article for educational purpose only.
I hope you found this article on Business Correspondent Roles and Responsibilities useful. If you have something to add please leave a comment in the post. Please feel free to contact me.