Business correspondents, electronic and pre-paid payments are ways to reach customers in un-banked areas

It is almost six years since the Government initiated the process of financial inclusion in a big way.

The stakeholders in the financial inclusion drive have made a beginning to unlock the opportunities from this segment.

In fact, models such as business correspondents (BC) have started emerging as a new way of delivering banking in un-banked areas.

It is apt to look at the current scenario in financial inclusion at a time when ‘Bancon 2012’ is focusing on the theme ‘Innovating to unlock the next decade’. The conference is looking at capturing the rural opportunity in a profitable manner.


Traditionally, banking facilities in India are offered through brick-and-mortar offices. Of the nearly one lakh bank branches in the country, more than 37,000 are located in rural India.

Nearly one-third of the 6,918 brick-and-mortar branches opened in the country during 2011-12 are situated in rural areas. The RBI report on ‘Trend and Progress of Banking in India for 2011-12’ says nearly 70 per cent of these branches are situated in tier-2 to tier-6 centres.


Compared to the brick-and-mortar branches, the BC model has seen rapid growth. While the branch expansion in rural areas with population of more than 2,000 registered a growth of 7.64 per cent in 2011-12, the number of business correspondents witnessed nearly 10 times that growth.

The evolution of the BC model has helped the banks provide banking services to customers without having a branch of theirs. The use of mobile technology is an important part of providing banking services under the BC model. Some banks are disbursing social security schemes’ funds through the BCs.

Banks have been advised to prioritise providing services at the doorstep to the beneficiaries of electronic benefit transfers through regular visits by BCs to the allotted villages, to make it a self-sustaining business model and over a period of time.

An analysis of the progress in the implementation of the Government-mandated financial inclusion plan (FIP) shows that penetration of banking has increased in rural areas. At the end of March 2012, villages covered by BCs constituted more than 80 per cent of the total villages covered under the FIP.

This indicates a move towards the widespread acceptance of BC model of financial inclusion by banks as well as rural consumers.


Under FIP, no-frills accounts enable customers to avail themselves of stress-free credit in the form of in-built overdraft facility. At the end of March 2012, no-frills accounts had surpassed 100 million in number.

The number of ICT-based (information and communication technology) accounts as a percentage of no-frills accounts has witnessed a steady increase in the last two years, indicating increased acceptance of ICT-based products among rural customers.

The RBI report on banking trends and progress in 2011-12 notes that in the ensuing year, the focus would be on the number and value of transactions in the no-frills accounts and credit disbursed through ICT-based BC outlets.

Compared to branches and BCs, the share of ATMs was low in rural areas. Only 9 per cent of the total number of ATMs in the country was present in rural areas.

Uttar Pradesh, Bihar, West Bengal and Andhra Pradesh accounted for more than 50 per cent of these newly opened banking outlets, including branches, BCs and others.

The financial inclusion drive, both in urban and rural areas, is likely to help different business models evolve and open up more opportunities in the banking sector.


According to an RBI report, the volume and value of transactions through the country’s two major electronic payment systems – RTGS and NEFT – have increased significantly. Both the value and volume of transaction through NEFT (National Electronic Funds Transfer) nearly doubled during 2011-12, and there was a considerable growth in the value and volume in RTGS (Real Time Gross Settlement) also. The report notes that the relaxations in the domestic money transfer guidelines introduced in October 2011 are expected to provide further impetus to financial inclusion through electronic pre-paid payment instruments (PPIs), by enabling all authorised entities (both banks as well as non-banks) to increase domestic remittances through formal payment channels. (PPIs are payment instruments that facilitate purchase of goods and services against the value stored on such instruments. Paper voucher, cards and m-wallets are the popular PPIs.)

As at the end of June 2012, 40 banks (including the Department of Posts) and 21 non-bank entities were granted approval / authorisation under the Payment and Settlement System (PSS) Act 2007, to issue PPIs in India.

At the end of March 2012, the number of PPIs issued in India stood at 43 billion worth Rs 290 crore. Considering this, it is now interesting to see how the bankers will dwell upon the topic of unlocking the next decade to explore the opportunities at the bottom of the pyramid.

(This article was published on November 23, 2012)
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