Banking Correspondent (BC)
Banking Correspondents (BCs) are individuals/entities engaged by a bank in India (commercial banks, Regional Rural Banks (RRBs) and Local Area Banks (LABs)) for providing banking services in unbanked / under-banked geographical territories. A banking correspondent works as an agent of the bank and substitutes for the brick and mortar branch of the bank.
BCs engage in
- identification of borrowers;
- collection and preliminary processing of loan applications including verification of primary information/data;
- creating awareness about savings and other products and education and advice on managing money and debt counselling;
- processing and submission of applications to banks;
- promoting, nurturing and monitoring of Self Help Groups/ Joint Liability Groups/Credit Groups/others;
- post-sanction monitoring;
- follow-up for recovery,
- disbursal of small value credit,
- recovery of principal / collection of interest
- collection of small value deposits
- sale of micro insurance/ mutual fund products/ pension products/ other third party products and
- receipt and delivery of small value remittances/ other payment instruments.
The banks in India may engage the following individuals/entities as BCs.
- Individuals like retired bank employees, retired teachers, retired government employees and ex-servicemen, individual owners of kirana (small shops) / medical /Fair Price shops, individual Public Call Office (PCO) operators, agents of Small Savings schemes of Government of India/Insurance Companies, individuals who own petrol pumps, authorized functionaries of well-run Self Help Groups (SHGs) which are linked to banks, any other individual including those operating Common Service Centres (CSCs);
- NGOs/ Micro Finance Institutions set up under Societies/ Trust Acts or as Section 25 Companies ;
- Cooperative Societies registered under Mutually Aided Cooperative Societies Acts/ Cooperative Societies Acts of States/Multi State Cooperative Societies Act;
- Post Offices;
- Companies registered under the Indian Companies Act, 2013 with large and widespread retail outlets
- Non-banking Finance Companies (NBFCs) were not allowed to be appointed as Business Correspondents (BCs) by banks. However, since June 2014 banks have been permitted to engage non-deposit taking NBFCs (NBFCs-ND) as BCs, subject to certain conditions:
While a BC can be a BC for more than one bank, at the point of customer interface, a retail outlet or a sub-agent of a BC shall represent and provide banking services of only one bank.
Banking correspondents were allowed by RBI vide a circular dated 25 January 2006. The concept of Banking Correspondent stemmed from a report of Shri. H R Khan, Dy Governor of RBI. Committee on Financial Inclusion Chaired by Dr. C. Rangarajan which submitted its report on 5 February 2008 had also recommended for the expansion of the BC model.
Guidelines on managing risks and code of conduct in outsourcing of financial services by banks were issued by RBI on November 3, 2006. The banks will be fully responsible for the actions of the BCs and their retail outlets / sub agents.
In order to promote financial inclusion, the Government, in October 2015, exempted services provided by a business facilitator or a business correspondent to a bank with respect to Basic Savings Bank Deposit Accounts covered by Pradhan Mantri Jan Dhan Yojana (PMJDY) by way of account opening, cash deposits, cash withdrawals, obtaining e-life certificates and Aadhar seeding in the rural area branches of banking companies, from Service Tax. The services provided by any person as an intermediary to a business facilitator or a business correspondent with respect to the above mentioned services have also been exempted from Service Tax.
Banking Correspondent in India, in all sense of the term, is equivalent to what is known as "Correspondent Banking" in Brazil (Generally, the term correspondent bank refers to a bank which functions as an agent of another bank in a foreign jurisdiction. However, Brazil uses this term for domestic agency services by individuals / entities). In some countries BC model is known as "Agent Banking".