What does RBI’s directive to Bank of Baroda say?

The RBI has directed Bank of Baroda to suspend, with immediate effect, any further onboarding of their customers onto the ‘bob World’ mobile application.

Why is the RBI asking BOB not to onboard new customers on its mobile app?

The regulator has sufficient cause to believe that there are certain ‘material supervisory concerns’ in the way customers are onboarded to the app.

Is this a cause of concern?

Yes, because it’s the first instance where the RBI has invoked section 35A of the Banking Regulation Act on a specific operating unit of a bank; which in this case is bob World, the mobile banking app of BOB. While HDFC Bank’s digital business including onboarding of customers was embargoed in December 2020, the provisions under which the ban was imposed wasn’t as severe as bob World’s case. Section 35A empowers the regulator to pronounce directives on a bank.

It is imposed when there are reasons to believe that the public interest or the interest of the banking policy is violated, or to prevent the bank from conducting affairs in a manner detrimental to depositors or prejudicial to the interest of the bank, or to secure proper management of the bank. Therefore, given the nature of provisions invoked, the ban on bob World seems to be a serious concern.

What went wrong at bob World?

Officially neither the bank nor the RBI have given details of the issues so far. However, an investigation by Reporter’s Collective, published in Al Jazeera, an international media outfit, in July revealed that the number of bob World users may be fake.

According to the report, bogus mobile phone numbers may have been tagged to existing account numbers who have not provided mobile numbers. This in turn was used to download and operate the bob World app. The exercise may have been done to bump up the user base of the app given that volumes are very important to improve its popularity in the digital world.

Won’t this inconvenience new customers of Bank of Baroda?

Not quite. While downloading and authenticating a user through the bob World was recently made mandatory, this is a newly introduced internal process and hence customers can be onboarded and authenticated without the app as well. New customers wanting to bank through mobile have other options available to them such as BOB’s regular banking app or internet banking portal.

What are the numbers on users of BOB’s mobile app, what was the growth in recent times?

According to Apple’s App store, bob World has 33,000 downloads with 4.3 rating, while in Google Play store the number is over 5 crore and 4.5 rating. The app has been a critical part in propelling the retail business growth in the recent years.

Although its exact contribution to business leads or revenue isn’t known, for the banking sector it is believed that 50-70 per cent of incremental business (retail and SME) is originated by their respective mobile banking apps.

Is the malpractice identified at Bank of Baroda likely to be prevalent in other banks and NBFCs too?

The regulator has been discouraging banks from excessive dependence on digital channels to originate and grow business. While the exact cause of concern isn’t known, digital channels are yet to prove themselves with strong underwriting capabilities.

Investigation at bob World would reveal whether the problem with digital apps is a localised issue or has sectoral ramifications.