Aiming to promote financial inclusion, the Reserve Bank of India (RBI) today allowed corporates and post offices to function as business correspondents (BCs), but barred non-banking finance companies (NBFCs) from it.
"Taking into consideration the pros and cons and based on the feedback received from various quarters, it has been decided to permit banks to engage companies registered under the Indian Companies Act, 1956, excluding Non Banking Financial Companies (NBFCs), as BCs," the RBI said in a revised guidelines.
Last month, the RBI had issued discussion paper on engagement of ''for profit'' companies as business correspondents (BCs) and had asked for feedback.
Business correspondents are retail agents engaged by banks for providing banking services at locations other than bank branches or ATMs.
Besides the above entities, retired bank employees, retired teachers, owner of kirana store, retired government employees and ex-servicemen, medical, fair price shops and individual Public Call Office (PCO) operators, among others, are permitted to work as BCs.
The RBI said the benefit of appointing corporates with a large and widespread retail network is that they would bring in larger resources, higher organisational strength and the financial backing needed for a large network of BCs, besides providing financial security to the bank.
"Failure of large companies as BCs would mean a reputation risk to the company and endanger its substantive business. As such, the companies could be relied upon to ensure that their agents do not jeopardise their reputation," it added.
However, a retail agent of a corporate may tend to provide banking services only to those customers who patronise the corporate''s products as that would enhance his earnings.
As such, there could be a conflict of interest.
The RBI said that NBFCs engaged in micro finance already have a large number of borrower clients who today do not have easy access to bank accounts, payment systems, remittance services and insured deposits and if engaged as BCs, they can further the objective of financial inclusion.
The RBI issued guidelines in January, 2006, for engagement of BCs by banks for providing banking and financial services.
