Policy

RBI allows banks to appoint non-deposit taking NBFCs as business correspondents

Our Bureau Mumbai | Updated on June 24, 2014 Published on June 24, 2014


To accelerate the flow of credit to those at the bottom of the pyramid, the Reserve Bank of India on Tuesday permitted banks to engage non-deposit taking non-banking finance companies (NBFC-ND) as Business Correspondents (BCs).

Further, to enlarge the catchment area of the BCs, the central bank has done away with the stipulation regarding distance criteria between the place of business of a retail outlet/sub-agent of BC and the bank’s base branch.

BCs usually offer services such as disbursal of small value credit; recovery of principal / collection of interest; collection of small value deposits; sale of micro insurance/ mutual fund products/ pension products/ other third party products; and receipt and delivery of small value remittances/ other payment instruments.

The RBI said banks can engage NBFC-ND as BCs only if they fulfil certain criteria including ensuring that there is no comingling of bank funds and those of the NBFC-ND.

Further, there should be a specific contractual arrangement between the bank and the NBFC-ND to ensure that all possible conflicts of interest are adequately taken care of.

Banks should also ensure that the NBFC-ND does not adopt any restrictive practice such as offering savings or remittance functions only to its own customers and forced bundling of services offered by the NBFC-ND and the bank does not take place.

The RBI has removed the stipulation regarding distance criteria between the place of business of a retail outlet/sub-agent of BC and the bank’s base branch to provide operational flexibility to banks and in view of the technological developments in the banking sector.

Hitherto, every retail outlet/sub-agent of BC was required to be attached to and be under the oversight of a specific bank branch designated as the base branch.

The RBI had stipulated that the distance between the place of business of a retail outlet/sub-agent of BC and the base branch should ordinarily not exceed 30 kms in rural, semi-urban and urban areas and 5 kms in metropolitan centres.

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Published on June 24, 2014
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