From being an alternate model, the Business Correspondent (BC) model is emerging as the predominant delivery model for banks to expand their last mile outreach in unserved/ underserved areas of the country, per a Reserve Bank of India (RBI) study.

The number of BCs across the country have grown at a compounded annual growth rate (CAGR) of 13.05 per cent to 11,76,221 as at March-end 2020 from 6,37,029 as at March-end 2016. However, the number of branches/ banking outlets in villages have only increased at a CAGR of 2.29 per cent to 58,042 as at March-end 2020 from 51,830 as at March-end 2016.

“Over the years, the BC model has assumed greater prominence over the traditional brick and mortar branches. Increasingly, the access to banking services in rural areas, particularly in the unserved/ underserved parts, is being provisioned through BC outlets,” according to the study by RBI officials Sushmita Phukan, Saju Thomas Punnoose, Abhishek Kumar, Dineshkumar S and Abhishek Kumar.

Retail agents

BCs are retail agents engaged by banks for providing banking services at locations other than a bank branch/ATM. BCs perform a variety of activities which include identification of borrowers, collection and preliminary processing of loan applications including verification of primary information/data, collection of small value deposit, disbursal of small value credit, and recovery of principal/ collection of interest.

They also undertake sale of micro insurance/ mutual fund products/ pension products/ other third party products and receipt and delivery of small value remittances/ other payment instruments. “While the growth in number of rural branches remained subdued during the review period (2016-2020), there was a significant growth in BC outlets in both villages and urban pockets providing formal financial services at the doorstep of large number of unserved/ underserved population,” the study, published in RBI’s latest monthly bulletin, said.

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The study noted that about 56 per cent of total Basic Savings Bank Deposit Accounts (BSBDAs) and 65 per cent of General Credit Cards (GCCs) were channelled through BCs. While BCs of public sector banks (PSBs) dominated the deposit space, private sector banks (PVBs) accounted for a major share in GCCs through BCs.

During the review period, the total transactions routed through BC outlets increased considerably both in terms of volume as well as value, the authors said.

Financial inclusion

Through the review of FIP data furnished by banks (PSBs, PVBs and Regional Rural Banks/RRBs) over the five years (2016- 2020), the study observed that the dominance of PSBs has continued in the financial inclusion space.

PSBs accounted for about 56 per cent of total rural branches in 2020. They were also predominantly present in the rural areas accounting for 60 per cent of total BC outlets in villages in 2020. “Similarly, of the total BSBDAs, the contribution of PSBs remained over 70 per cent during the review period. Further, among the credit products, KCCs were channeled mainly through PSBs, which accounted for 58 per cent of the total number of KCCs (Kisan Credit Cards) in 2020,” the authors said.

As PSBs continued to maintain their hold, the authors underscored that PVBs too registered a higher growth in both access and usage indicators during the review period.

The study noted that there was a growth in BC outlets in villages for PVBs with the growth being significantly high for the northeastern, eastern and central regions, surpassing the growth of PSBs and RRBs together. PVBs also significantly improved their tally of urban BC outlets during the five years with their share growing from 77 per cent in 2016 to 97 per cent in 2020, the authors said.

On similar lines, contribution of PVBs in the total number of BC agents too grew exponentially from 37 per cent in 2016 to 80 per cent in 2020.

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