The finance ministry and lenders are in talks to firm up a fresh model framework that would govern the functioning of various business correspondents, who play a critical role in providing last-mile delivery of banking services in unserved or underserved areas of the country on behalf of banks.
The move is aimed at identifying any gaps in the extant regime and making it more robust, official and banking sources told FE.
“The Indian Banks’ Association (IBA) has prepared a draft model business correspondent agreement. Once the department of financial services (DFS) approves it, it will govern the relation between banks and these entities,” said one of the sources. The DFS has already formed a monitoring panel, headed by its secretary, to regularly review the functions of banking correspondents.
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Business correspondents are essentially retail agents who are engaged by banks to provide banking services at locations other than a bank branch or ATM, mostly in rural areas. They are engaged in a plethora of activities, including the identification of borrowers, collection and preliminary processing of loan applications, disbursement of small-value loans and recovery. They also sell micro insurance, mutual fund and pension products, among others.
According to a 2021 study by RBI officials, the number of business correspondents had grown at a compounded annual growth rate of 13.05% to 11.76 lakh as of March 2020 from 6.37 lakh at the end of March 2016. However, the number of branches/ banking outlets in villages during this period had risen at a CAGR of only 2.29% to 58,042 from 51,830. Thus, the business correspondent model is fast emerging as a predominant delivery model for banks to expand their last-mile outreach in rural areas.
“Over the years, the BC (business correspondent) 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,” according to the study by RBI officials Sushmita Phukan, Saju Thomas Punnoose, Abhishek Kumar, Dineshkumar S and Abhishek Kumar.