 "Proposed branch definition poses challenge for SFBs")
Finding unbanked areas could be the next big task for the upcoming small finance banks (SFBs), which need to have at least 25 per cent of their branches in such areas.
Earlier, an unbanked area would mean a rural centre that does not have a brick-and-mortar structure of any scheduled commercial banks for customer-based banking transactions. But, with a recent Reserve Bank of India (RBI) report proposing to widen the definition of bank branches, now even business correspondents with fixed outlets will fall under the category of banking outlets. So, in effect if an unbanked area has even one such outlet, it would technically become a ‘banked area’.
With a large number of banks and financial institutions already having business correspondents in far-flung areas, finding areas with no banking services at all would be a challenge for the proposed SFBs.
The proposal to widen the definition was recently mooted by RBI in the Report of the Internal Working Group on Rationalisation of Branch Authorisation Policy. The regulator has invited stakeholders’ comments on the issue.
Small finance banks are already planning to take up the issue with RBI. “This is only a working group report. We’ll wait for the final report. All SFBs are collectively planning to take up the issue with RBI. There are a number of inoperative banking correspondents. We would like to understand if they would also be counted as banking outlets. Finding unbanked areas would now be a challenge; we might have to rework our strategy,” said the head of a proposed SFB on condition of anonymity.
In 2014 – the year Prime Minister Narendra Modi launched the Pradhan Mantri Jan Dhan Yojana – the unbanked population fell by 182 million.
In its report on branch rationalisation, RBI has said banking outlets opened in north-eastern states, Sikkim and in Left-wing extremism affected districts would be treated as a banking outlet in an unbanked rural centre. Hence, almost all the proposed SFBs are looking to open branches in these areas to meet their targets.
On the positive side, the proposed banks would be able to open banking outlets at a low cost, almost less than one-third of that of a full-fledged branch.
“RBI is moving away from the policy obligatory financial inclusion. Financial inclusion will now be more of a business proposition than obligation,” said R Baskar Babu, chief executive officer at Suryoday Micro Finance.
