Private sector banks are increasingly turning towards business correspondents or BCs for growing their business in rural and semi-urban areas, senior officials say. BCs are cost-effective for lenders, can now perform a host of banking services, and enable last mile reach which is mandated by the Reserve Bank of India (RBI).
“We are looking at BCs as a subsidiary. Around 951 branches (BCs) are there from subsidiary, out of which we identified somewhere around 800 branches where there is a possibility of raising term deposit or saving account with a fair amount of balance,” said RBL Bank MD, CEO R. Subramaniakumar.
He added that BCs can help the bank expand in outskirts of major cities and our footprint increases simultaneously. According to him, if the bank is able to collect, for example, Rs 10 lakh per branch per month, we will add 4% in low-cost CASA (current account and savings account) and retail deposit in one year.
BCs have traditionally been used by the public sector banks for providing basic banking transactions in the hinterlands of the country. However, BCs now perform over 20 types of banking services including deposit, loan generation leads and also offer some of the banks’ third-party products. This gains importance because lenders are competing heavily to attract deposits, especially low-cost CASA.
“Earlier we were not doing business with private banks. But now it has become very lucrative for them (to turn towards BCs) as they have to meet certain targets… It is also the mandate of the RBI to provide banking services in unbanked population and we are one of the sources which has vast reach to provide the suite of services,” said BC major company BLS E-Services’s Chairman Shikhar Agarwal.
The company, which went public in February this year, had 40,000 BC outlets with 6 lakh-7 lakh footfall per day, and plans to double it in the next 1.5-2 years.
Country’s largest private sector lender HDFC Bank also used the BC channel to reach 2 lakh villages in FY24. The lender first developed its BC model wherein it partnered with common service centres (CSC), which is a central government run company under the Ministry of Information and Technology. CSCs provide more than 300 government services through their digital platform and have more than 500,000 common service centres across 80%-90% of India’s rural panchayats. The bank’s unbanked rural centres too increased rom 4,818 in February 2023 to 5,020 in February 2024.
Similarly, Axis Bank has grown its CSC village level entrepreneurs (CSC VLE) network buy over 2X over the last two years to 63,599 as on December, 2023. VLEs delivers various government and non-government services to the end consumers from the CSC outlet.
“I think both private and public sector banks are seeing BC as a channel to develop business. That is a good channel considering the challenges to get people working in hinterlands, counter attrition and it helps further financial inclusion and enable growth,” said K. Paul Thomas, MD & CEO at ESAF SFB.
“It is a cost effective model. We are using BCs for sourcing and servicing part. Underwriting technology and product lies with the bank,” he added.
