RBI okays NBFCs as correspondents

The Reserve Bank of India (RBI) on Tuesday stated that it has allowed commercial banks to appoint non-banking finance companies (NBFCs) as Business Correspondents (BCs) to accelerate work on financial inclusion.

Only non-deposit taking NBFCs will be eligible to act as BCs of banks for financial inclusion program, said RBI in a notification on its website.

RBI also removed a rule making it compulsory for banks to attach each outlet and sub-agent of BC to specific bank branch.  Earlier, banks had to assign BC outlets to branch in 30 km distance in case of rural, semi-urban and rural area and five km range in metropolitan region. This was done to ensure adequate supervision over operations of BCs.

In a statement,  the RBI said that it had decided to remove the stipulation regarding distance criteria to provide operational flexibility to banks. 

Consequently, the technological developments in the banking sector have made work of oversight easy.

The review of norms to appoint BCs follows recommendations of the Mor Committee. The panel headed by Nachiket Mor, RBI board member, had suggested to take steps to accelerate flow of credit to those at the bottom of the pyramid and enlarge catchment area of the Business Correspondents.
RBI in its bi-monthly review of monetary policy 2014-15 had said it was considering the recommendations.  This flexibility for banks in dealing with BCs comes with riders. The board approved policy for engaging BCs should factor in objectives of adequate oversight and services to customers.

Banks will have to ensure that there is no coming of bank funds and those of the NBFCs appointed as BC. Bank and NBFC (acting as BC) should have a specific contractual arrangement to ensure that all possible conflicts of interest are adequately taken care of, added RBI.

 They also have to make sure that the NBFC-ND does not adopt any restrictive practice like offering savings or remittance functions only to its own customers. They should ensure that forced bundling of services offered by the NBFC-ND and the bank does not take place.

At the same time, the banking regulator said banks can continue to take step to address possible reputational risks arising out of appointment and functioning of BCs.