Agent Banking: Need for Code of Conduct for Business...
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Agent Banking: Need for Code of Conduct for Business Correspondents Anisha Singh and Suraj Nair, IFMR LEAD The Current Status of BCs in India Since its introduction in the year 2006, the Business Correspondent (BC) model has been seen as an innovative way of serving the unbanked by allowing the banks to reach out to them through a network of ‘external agents’ or entities. The Reserve Bank of India estimates the number of ‘business correspondents’ (BCs) employed at over half a million (March 2016). It was estimated that approximately 469 million Basic Savings Bank Deposit Accounts (BSBDA) had been opened by the end of March 2016 through these BCs as well. (A number no doubt boosted by enrolments under the PMJDY scheme). Around 49% (~231 million) of these accounts had been opened through the BC network across India. Furthermore, deposits made through BCs account for about a quarter of all the deposits in BSBDA accounts (March 2016). Thus, it is evident that the BC Model has shown a lot of promise so far, and is an important pillar of the financial infrastructure in the country. Advantages and Challenges of the BC Model Cost-effective Doorstep Banking Better asset quality Scale Up Enables banks to extend financial services to the unbanked and under banked areas much faster and at a much lower cost. Disbursement and loan recovery at the doorsteps of the beneficiary. Clients are well known to local NGOs, Post Offices, BDOs and similar local social bodies. Loan facilitation by the NGOs/BCs (who are the promoter/ builder of the groups) enhances quality of assets. Possible within a short span of time Despite the advantages of the BC Model highlighted above, significant challenges and shortcomings have hindered further progress of the BC network in India. Most notably, a recent RBI survey found that 47% of existing Bank Mitr (RBI 2014) were untraceable. Other issues are discussed below. Need for Regulation • Lack of dedicated regulatory body - No rigid monitoring or supervisory framework for the BCs exists. While a rigid structured monitoring mechanism at Centre, State and District level has been proposed under the PMJDY, little literature is available on the efficacy of this approach. 0 100,000 200,000 300,000 400,000 500,000 600,000 2010 2011 2012 2013 2014 2015 2016 34,316 80,802 141,136 227,617 337,678 504,142 534,477 No. of BCs 13.3 31.6 57.3 81.3 116.9 188 231 2010 2011 2012 2013 2014 2015 2016 Basic Savings Bank Deposit A/c through BCs (in millions)
Transcript of Agent Banking: Need for Code of Conduct for Business...
AgentBanking:NeedforCodeofConductforBusinessCorrespondentsAnishaSinghandSurajNair,IFMRLEAD
TheCurrentStatusofBCsinIndiaSinceitsintroductionintheyear2006,theBusinessCorrespondent(BC)modelhasbeenseenasaninnovativewayof serving the unbanked by allowing the banks to reach out to them through a network of ‘external agents’ orentities.TheReserveBankofIndiaestimatesthenumberof‘businesscorrespondents’(BCs)employedatoverhalfamillion(March2016).Itwasestimatedthatapproximately469millionBasicSavingsBankDepositAccounts(BSBDA)hadbeenopenedbytheendofMarch2016throughtheseBCsaswell.(AnumbernodoubtboostedbyenrolmentsunderthePMJDYscheme).Around49%(~231million)oftheseaccountshadbeenopenedthroughtheBCnetworkacross India. Furthermore, depositsmade through BCs account for about a quarter of all the deposits in BSBDAaccounts(March2016).Thus,itisevidentthattheBCModelhasshownalotofpromisesofar,andisanimportantpillarofthefinancialinfrastructureinthecountry.
AdvantagesandChallengesoftheBCModel
Cost-effective DoorstepBanking Betterassetquality ScaleUp
Enablesbankstoextendfinancialservicestotheunbankedandunder
bankedareasmuchfasterandatamuchlowercost.
Disbursementandloanrecoveryatthedoorsteps
ofthebeneficiary.
ClientsarewellknowntolocalNGOs,PostOffices,
BDOsandsimilarlocalsocialbodies.LoanfacilitationbytheNGOs/BCs(whoarethepromoter/builderofthe
groups)enhancesqualityofassets.
Possiblewithinashortspanoftime
DespitetheadvantagesoftheBCModelhighlightedabove,significantchallengesandshortcomingshavehinderedfurtherprogressoftheBCnetworkinIndia.Mostnotably,arecentRBIsurveyfoundthat47%ofexistingBankMitr(RBI2014)wereuntraceable.Otherissuesarediscussedbelow.
NeedforRegulation
• Lackofdedicatedregulatorybody -Norigidmonitoringorsupervisory framework for theBCsexists.WhilearigidstructuredmonitoringmechanismatCentre,StateandDistrictlevelhasbeenproposedunderthePMJDY,littleliteratureisavailableontheefficacyofthisapproach.
0100,000200,000300,000400,000500,000600,000
2010 2011 2012 2013 2014 2015 2016
34,31680,802141,136
227,617337,678
504,142 534,477
No.ofBCs
13.3 31.657.3 81.3
116.9
188231
2010 2011 2012 2013 2014 2015 2016
BasicSavingsBankDepositA/cthroughBCs(inmillions)
BCs-Challenges(SupplyandDemandSide)
• Majorityoftransacbons-incash-highoperabonalrisk
• IrregularAccounbng
• Illiterateandunbankedclientele-suscepbbletomisguidance
• Chancesoffraudandmisappropriabon
• DifficultiesinmonitoringBCs-Giventhevastnessof the BC network, it must also be kept in mindthatrigidmonitoringmaynotalwaysbefeasibleorcost-effective.
• Operational issues – The fact that BCs have nocontroloverproductdesignandsuitabilityreducestheirleverage,andownership
Since BCs act on behalf of the banks that theyrepresent,theirlong-termsustainabilityandcredibilitybecomescriticalandhastobeestablishedthroughawiderangeofenablingmeasures,checksandcontrols.Inthiscontext,theestablishmentofacodeofconductforBCs,akintothecodeofconductforMicro-FinanceInstitutions(MFIs) in India,couldbeonesteptowardsaddressingseveralof thechallengesfacedbybothbanksandclients ininteractingwithBCs.Thisisalsolikelytogoalongwayinestablishingandimprovingclientconfidenceinthesystem.
WhatacodeofconductforBCscouldlooklike
AreaofConcern CurrentSituation ProposedRegulation
Privacyofclientinformation
Responsibility to maintain security andconfidentiality of customer informationin possession of the BC lies with thebank.
EnsureBCshavesomeaccountabilityinmaintaining privacy of customerinformation and any disclosure ofconfidential information has to bepermittedinwritingbythecustomer.
Fairpractices
RBI guidelines cover fair practice issuesfrom the perspective of the bankimplementingtheBCmodel.
Inclusionof transparency,honestyandother modules of fair practices in thecodeofconductthatpreventBCsfromindulging in any kind of fraud orexploitationofcustomers.
Clienteducation
UnderRBIguidelines,banksadoptingtheBC model should commit to includingfinancialliteracyandcustomereducationin their business strategy and put theirefforts toward educating their clienteleonthebenefitsofbanking.Banksshouldideallyusetheirwebsite,printandotherelectronic media to increase awarenesson the implementationof theBCmodelbythem.
BCs can put in place a dedicatedprocess to inform clients about theoptions and services they providerelating to the various financialproducts available. Communication ofbankingpolicyshouldbenecessaryandtransparent from BCs to clients. Thebankscanthenensurechecksonclientawarenessofthetermsandconditionsofvariousproductsandpolicies.
GrievanceRedressalMechanism
RBIguidelinessuggestbanksshouldhaveagrievanceredressalsystemwithineachbank for addressing complaints onservices provided the BCs and publicizeinformation of this grievance redressalofficer widely.
The BCs themselves should also carryinformation of the grievance redressalofficewiththemandprovideallclientswith this information and facilitatepassingonofanycomplaints.
Transparentandethicalbehaviour
Responsibilitylieswiththebank. BCs should disclose all terms andconditionsassociatedwiththeproductoffered ideally in their regionallanguage.Disclosureofallservicefees,taxes, and interest rates should becommunicatedclearly.
Note:StatisticsonBCsandnumberofBSBDAopenedhavebeenobtainedfromtheannualRBIreports(2010-2016).
