Telecom, FMCG firms to be looked at, plans need some work on details
Banks have welcomed the Reserve Bank of India’s (RBI’s) decision to allow banks to choose companies as business correspondents (BCs).
A BC assists a bank in identifying borrowers and liaising with them on products and recovery of loans. Till now, only specified individuals, cooperative societies and non-government bodies were eligible to act as BCs.
State Bank of India, the nation’s largest, may finalise the names of companies within a few weeks. Others who welcomed the RBI decision included IDBI Bank, Corporation Bank, Vijaya Bank and Karntaka Bank.
“Banks will definitely prefer a company that’s active in rural areas,’’ said a senior SBI official, who declined to be identified as he is not authorised to speak to the media. “Companies in the telecom industry will be the most likely ones. It will bring (only) small revenue, so it may not be a priority for some.’’
So far, state-run banks are the ones mainly active in the central bank’s initiative to promote financial inclusion, that is, taking financial services to remote and rural areas. RBI is pushing banks to extend banking, currently available in just about five per cent of the 600,000 habitations across the country. Less than half of Indians have a bank account. RBI has made rural expansion a condition for allotting banking licences to new entities in the private sector.
As part of the move, RBI yesterday approved ‘for-profit’ companies to operate as BCs of banks to take financial services to the poor, elderly, infirm, disabled and those with poor access to banks. RBI also allowed a variety of individuals, co-operatives, microfinance institutions and post offices to operate as retail agents.
FMCG, telecom offer prospects
“Companies in FMCG (fast moving consumer goods) and telecom have sound marketing muscle and distribution channels in rural areas. So, a tie-up with them will definitely increase the velocity of financial penetration in rural areas,” said Albert Tauro, chairman & managing director of Vijaya Bank.
BCs will help people open bank accounts, accept small amounts as deposits and give small loans, besides selling micro insurance, mutual funds and pension products, apart from remittance of funds across the nation. They would also spread financial literacy.
“Remittances seems to be the most preferred service that’ll be first introduced by most banks,’’ said a banker. “Opening of savings accounts and giving loans will follow. Banks may also consider giving cheque facilities, but that can happen only after the systems are developed.”
Among individuals permitted to act as BCs are retired bank employees, retired teachers, retired government employees, former soldiers, public call office (PCO) telephone operators, agents of government small savings products and self-help groups, besides registered non-government bodies, micro-finance institutions and co-operative societies.
A for-profit company operating as a BC can tie up with more than one bank. However, any retail outlet will be a sub-agent for just one bank. Public sector banks are also helping in the government’s unique identification, or Aadhaar, project by registering individuals.
Plan needs work
“We have made a plan for 4,800 villages. This is an evolutionary process. We need to see how to coordinate the existing system with the new one, as the existing technology provider already has own business correspondents,’’ said K R Kamath, chairman and managing director of the New Delhi-based Punjab National Bank. “We signed an agreement in regard to Aadhar about two months back.”
PNB first plans to assess the risks involved in appointing for-profit companies as BCs. ICICI Bank, the biggest private sector lender, was finalising plans, said a spokesman from Mumbai.
Corporation Bank plans to extend financial services in 212 villages by the end of the current financial year, of which it has already covered around 80 per cent villages, says Executive Director Asit Pal. The bank's tie-up with Aadhaar would help it in the 'Know Your Customer' provisions, he said.
Adding: “There are many corporate houses having significant penetration in rural areas and this decision is likely to boost the financial inclusion plan. Cheque services will take some time as the inter-bank money transfer facility needs to be evolved under this scheme.’’
Karnataka Bank planned to cover 75 villages under the financial inclusion plan in 2010-11 and would decide on a tie-up with a corporate house in due course, a director of the bank said.
Financial inclusion was a huge task and RBI’s decision would help, said J P Dua, chairman and managing director of Allahabad Bank. “The task is so huge that no single entity can handle it. At Allahabad Bank itself, we need to adopt 2,618 villages in the next two years, and about 15,500 villages below the population of 2,000,’’ said Dua. “We will sign an agreement with Aadhaar next week.”
IDBI Bank has done some initial work to engage for-profit companies as BCs, said Chief Financial Officer P Sitaram. The arrangement with BCs that meet regulatory norms will would help to expand reach, he said. The clarity about the nature of arrangements would emerge in the next three months.
