Banks

Rural banks can appoint NBFCs as Business Correspondents

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The Reserve Bank of India has modified the eligibility criteria for individuals and entities to be appointed as Business Correspondents (BC) of regional rural banks (RRB). The new guidelines allow RRBs to appoint non-banking financial institutions (NBFC) as BCs, though with certain riders:

– The bank’s funds and the funds being administered by the NBFC should not intersect at any point.

– The RRB and the NBFC acting as a BC should have a contractual agreement between them as a safeguard towards cases of conflict of interest.

– The RRB also needs to ensure that the NBFC doesn’t provide savings or remittance functions to its existing customers only and that there isn’t any bundling of services offered by the NBFC and the RRB.

– RRBs are also not allowed to extend financial assistance in the form of loans and advances to NBFCs.

– All agents working on behalf of a NBFC as a business correspondent need to be registered with a specific bank branch and the distance between the agent’s area of operation and the branch shouldn’t be more than 30 km in rural and semi-urban areas.

Other entities that can operate as Business Correspondents are:

– In 2009, the RBI had allowed kirana (grocery)/medical /fair price shop owners, Public Call Office (PCO) operators, agents of small savings schemes of the Government of India/insurance companies, petrol pump owners, retired teachers and authorised functionaries of well-run Self-Help Groups (SHGs) linked to banks to operate as business correspondents.

– Broadband-enabled Common Service Centers (CSCs) were allowed to be appointed as business correspondents in April 2010. These centers provide villages with services such as internet access, e-learning, electronic bill payments, insurance premium collection, e-commerce, distance education etc.

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