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.