RBI suggests wider definition of banking outlet

The Reserve Bank of India proposes to give a breather to banks, especially small finance banks, by bringing all places of their business, including extension counters, satellite offices, ultra small branches, fixed point business correspondent outlets, and manned ATMs, within the definition of a banking outlet to help them fulfil the criteria of opening 25 per cent branches in un-banked rural centres.

In light of the rapid developments in technology and the advent of differentiated banks — small finance banks and payments banks — the RBI said it is necessary to redefine branches and permissible methods of outreach keeping in mind the various attributes of banks and types of services that are sought to be provided. An RBI internal working group on rationalisation of branch authorisation policy has recommended that all domestic scheduled commercial banks (DSCBs) be advised to open at least 25 per cent of their ‘total banking outlets’ (as per the expanded definition) opened during a year in un-banked rural centres (URCs).

A ‘part-time banking outlet’, opened in any centre, will be counted and added to the denominator as well as numerator on pro-rata basis for computing the requirement as well as compliance with the norm of opening 25 per cent banking outlets in URCs.

A part-time banking outlet is a fixed point service delivery unit of the bank, which does not comply with the ‘banking outlet’ norm regarding minimum four working hours per day for at least five days a week.

The proposed expansion of the definition of banking outlet is in view of non-banking finance companies/micro-finance institutions, which are converting to small finance banks, flagging concerns on the requirement of meeting the 25 per cent norm of opening branches in URCs within a year of their commencement of operations.

The Group, headed by Lily Vadera, Chief General Manager, RBI, recommended that opening of a 'banking outlet/part-time banking outlet in any centre in the North-Eastern States and Sikkim as well as in any of the 106 left-wing extremism (LWE) affected districts in 10 States, notified by the Government of India, may be considered as equivalent to opening a banking outlet/part-time banking outlet in a URC.

Banks, according to the Group, may be allowed the benefit of the ‘banking outlets’, if any, opened in the URCs/N-E States, Sikkim and LWE affected districts, in excess of 25 per cent of the total ‘banking outlets’ during a year which may be allowed to be carried forward for a maximum period of two years

The Group suggested that the current prescription of branches in Tier I centres not toexceed branches in Tier II to VI centres may be removed.

As a corollary, it has also been recommended that the incentive of allowing Tier I centres for opening the branches in under-banked districts of under-banked States be withdrawn.

In view of the constraints expressed by small finance banks relating to closing/conversion of their existing large network of branches focussed on asset servicing or complying with 25 per cent norm of opening branches in URCs within a year, the Group felt that the regulatory framework needs to provide an enabling environment to preserve the advantages of the MFI/NBFC structure of these entities with a view to further financial inclusion.

“…they may be given a reasonable time period of three years to close or convert all their existing branches into ‘banking outlets’…Till such time the existing structures may continue and would be treated as ‘banking outlets’ though not immediately, reckoning for the 25 per cent norm.

“Thus, at the end of three years, all SFBs should have opened 25 per cent of their total banking outlets in URCs, failing which appropriate restrictive measures on further branch expansion by such banks will be considered and imposed, as deemed appropriate,” said the Group.

According to the RBI, the total number of banked and un-banked centres (where no physical brick and mortar branch of a bank is present) as on December 31, 2015, stood at 49,686 and 555,782, respectively.

This data does not include the banking services rendered through other modes, such as satellite offices, extension counters, mobile branches or the presence of business correspondents which have significant outreach.

If the Pradhan Mantri Jan Dhan Yojana data on bank mitras (BC outlets) at 1.25 lakh is taken into account for defining a ‘banked’ centre, the number of un-banked centres comes down to about 4.25 lakh — which is still a very large number.

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