The decision of the Reserve Bank of India (RBI) to allow banks to engage companies with large retail outlets as business correspondents has the potential to change the future of financial inclusion and branch banking in India. These, along with others eligible to act as correspondents like retired government employees and teachers, owners of kirana stores, operators of public call offices, agents of insurance companies and local entities such as post offices and self-help groups, can make up a formidable army which can take banking to the farthest corners of the country almost overnight without the need for new bricks and mortar branches. What can be delivered includes virtually every kind of retail banking service. Non-banking financial companies, i.e. large microfinance institutions (MFIs) which are so constituted, have been specifically excluded. As these, numbering close to 10, are in line to apply for banking licences, there can be no logic in the exclusion. They also have very wide and efficient rural networks and their exclusion can be counterproductive. As not all of them can get banking licences, do we want large FMCG companies to act as de facto banks but not large, professionally run MFIs?
RBI has outlined measures to ensure that this new army making up the long arm of banking works acceptably. All responsibility for what is done by correspondents will rest with the banks they are representing (at the ground level no one will be able to represent more than one bank) and in whose name all business will be conducted. Banks will continue to be liable for knowing their customers. The base branch to which a correspondent is attached will introduce the sub-agent of the correspondent to the villagers in the presence of local elders to prevent impersonation. Technologically, the hand-held devices through which transactions will be conducted will have to be linked real time to the parent bank’s core-banking network and customers will have to be given debit/credit slips as proof of transaction or shown evidence of transactions on screens.
Perhaps, most critically, RBI has forbidden those delivering these financial services from tying up transacting with them in their main line of business. A kirana shop owner should not be able to insist that the banking customer also buys her provisions from her. It is not clear if an FMCG firm will be able to tell the local shop owner that she will be made a sub-agent only if she does not stock the products of competitors. As small villages sometimes have only one store worth the name, which can front only one bank, and considering that the local shop owner also often acts as the local moneylender (now she will also process small loan applications), the scope for abuse is enormous. The guidelines have clearly stated that no fees can be charged from banking customers for any transaction, but it remains to be seen what will happen in a country where the village postman routinely takes his cut while paying out a money order.
