BCs emerging as predominant 'Delivery Channels' for banks to expand last mile outreach: RBI study

Over the years, the Business Correspondent ( BC) model has assumed greater prominence over the traditional brick and mortar branches. Increasingly, the access to banking services in rural areas, particularly in the unserved/ underserved parts, is being provisioned through BC outlets. From being an alternate model, the BC model is emerging as the predominant delivery model for banks to expand their last mile outreach in unserved/ underserved areas of the country.

Acc. to the latest RBI study, as on 31st March 2020, more than 1.17 million BCs were providing banking services to the people in the country. These BCs act as an important channel for the delivery of direct government benefits to nearly?800 million poor ?people and were instrumental in delivery of social assistance benefits during the COVID-19 pandemic.

The number of BCs across the country have grown at a CAGR of 13.05% to 11,76,221 as at March-end 2020 from 6,37,029 as at March-end 2016. However, the number of branches/ banking outlets in villages have only increased at a CAGR of 2.29% to 58,042 as at March-end 2020 from 51,830 as at March-end 2016.

While the growth in number of rural branches remained subdued during the review period (2016-2020), there was a significant growth in BC outlets in both villages and urban pockets providing formal financial services at the doorstep of large number of unserved/ underserved population.

Retail agents:

BCs are retail agents engaged by banks for providing banking services at locations other than a bank branch/ATM. BCs perform a variety of activities which include identification of borrowers, collection and preliminary processing of loan applications including verification of primary information/data, collection of small value deposit, disbursal of small value credit, and recovery of principal/ collection of interest.

They also undertake sale of micro insurance/ mutual fund products/ pension products/ other third party products and receipt and delivery of small value remittances/ other payment instruments.

The study noted that about 56% of total Basic Savings Bank Deposit Accounts (BSBDAs) and 65% of General Credit Cards (GCCs) were channelled through BCs. While BCs of public sector banks (PSBs) dominated the deposit space, private sector banks (PVBs) accounted for a major share in GCCs through BCs.?

During the review period, the total transactions routed through BC outlets increased considerably both in terms of volume as well as value.

Financial inclusion:

Through the review of FIP data furnished by banks (PSBs, PVBs and Regional Rural Banks/RRBs) over the five years (2016- 2020), the study observed that the dominance of PSBs has continued in the financial inclusion space.?

• PSBs accounted for about 56%of total rural branches in 2020. They were also predominantly present in the rural areas accounting for 60 per cent of total BC outlets in villages in 2020.
• Total BSBDAs, the contribution of PSBs remained over 70% during the review period.
• Further, among the credit products, KCCs were channeled mainly through PSBs, which accounted for 58%of the total number of KCCs (Kisan Credit Cards) in 2020.
• As PSBs continued to maintain their hold, the PVBs too registered a higher growth in both access and usage indicators during the review period.?
• There was a growth in BC outlets in villages for PVBs with the growth being significantly high for the northeastern, eastern and central regions, surpassing the growth of PSBs and RRBs together.
• PVBs also significantly improved their tally of urban BC outlets during the five years with their share growing from 77% in 2016 to 97% in 2020.
• On similar lines, contribution of PVBs in the total number of BC agents too grew exponentially from 37%in 2016 to 80%in 2020.

The BC channel in India is one of the most effective ways to provide the underserved segment with low-cost banking and payment services. However, the model struggles with many prevailing issues, including its agility to cope with emergency scenarios?like COVID-19.

BC agents are essential for the last-mile delivery of financial services across the country, as has been made clear by their role in DBT transfers during the pandemic. Acknowledging their importance, the government, regulators, and other supply-side players need to find feasible solutions for the key issues mentioned above.