Corporates can act as biz correspondents

 
“Taking into consideration pros and cons and based on feedback received, it has been decided to permit banks to engage companies registered under the Indian Companies Act, 1956, excluding Non Banking Financial Companies (NBFCs), as BCs,” RBI said in a revised guidelines. Last month, RBI had issued discussion paper on engagement of ‘for profit’ companies as business correspondents (BCs) and had asked for feedback.

Business correspondents are retail agents engaged by banks for providing banking services at locations other than bank branches or ATMs.

Besides the above entities, retired bank employees, retired teachers, owner of kirana store, retired government employees and ex-servicemen, medical, fair price shops and individual Public Call Office (PCO) operators, among others, are permitted to work as BCs. The Reserve Bank said the benefit of appointing corporates with a large and widespread retail network is that they would bring in larger resources, higher organisational strength and the financial backing needed for a large network of BCs, besides providing financial security to the bank.

The RBI said NBFCs engaged in micro finance already have a large number of borrower clients who do not have easy access to bank accounts, payment systems, remittance services and insured deposits and if engaged as BCs, they can further the objective of financial inclusion.

Reasonable commission

The RBI issued guidelines in January, 2006, for engagement of BCs by banks for providing banking and financial services.

The banks may pay reasonable commission to the BC, the rate and quantum of which may be reviewed periodically. The agreement with the BC should specifically prohibit them from charging any fee to the customers directly for services rendered by them on behalf of the bank, it said. When the BC model was introduced in January, 2006, the entities permitted to act as BCs included NGOs or Micro Finance Institutions set up under Societies or Trust Acts.

As regards Section 25 companies, it was subsequently clarified in April, 2008, that banks can engage such companies as BCs provided the NBFCs, banks, telecom companies and other corporate entities or their holding companies did not have holdings in the proposed BC in excess of 10 per cent.