It is good that the idea of Digital Banking Units, mooted in this year’s Union Budget, is becoming a reality. The launch of 75 digital banking units across 75 districts is expected to give a fillip to the outreach of banking services, taking them beyond metros and large cities, to regions where financial inclusion, access to capital and formalisation of credit remain a challenge. DBU is a phygital version of a bank branch. While this is a brick-and-mortar outlet, all transactions will be done through digital banking. Customers well-versed in using technology can access banking products through the self-service zone while those who do not possess computers or smartphones or are uncomfortable with digital banking, such as senior citizens, can avail services from the digital assistance zone. DBU is expected to achieve what UPI did for payments; digitise banking products by making it possible for everyone to do online banking transactions. The scope of these banking units therefore extends beyond withdrawal and deposit of cash to loan applications, investments in bank deposits, applying for debit and credit card, making nominations and so on. 

Banks will find it more viable to open DBUs since the RBI’s directive for opening and operating branches are not applicable to these units. The flexibility may hence result in substantial saving on costs and improve operational efficiency, profitability, and turnaround time at branches. It would also permit banks, particularly the public sector ones which have been downsizing branches post the recent rounds of mergers, to adopt a nimbler approach to expand their footprint. Currently, a branch cannot be shut down easily even if it proves unviable and fails to breakeven despite three years of operations, which is the time typically required to turn profitable. This is due to the tight regulations governing such decisions. Expansion through DBUs will effectively address this aspect, giving banks more flexibility to open and shut outlets, which can eventually help improve the pace of financial inclusion. The DBU initiative also comes at a time when neo-banks, which offer end-to-end digital banking services by partnering with banks through mobile or online apps, are demanding digital bank licenses. By paving the way for the existing banks to set up DBUs, the RBI has essentially put a lid on such lobbying.  

However, the effectiveness of DBUs will depend on two factors — manpower and internet availability. For DBUs to find acceptance and win the trust of customers, banks must ensure that the local talent is trained and allowed to man these outlets and frequent transfers of staff at these outlets must be avoided. Secondly, while internet penetration has increased, the quality of internet continues to be a problem in tier-2 and below regions. For effective closure of a transaction, this impediment should be addressed. The 75 DBU touchpoints will provide ample learnings which can be used to improve this concept in the future.  

comment COMMENT NOW