Necessary Reforms in BC Banking Model

Necessary Reforms in BC Banking Model

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BC or, the Banking Model can continue to play a crucial role in India's efforts to promote financial inclusion. Training them and gradually expanding their responsibilities is necessary to maximize their effectiveness. For instance, when business correspondents reach a higher volume of business, they may be given more responsibilities, such as providing credit services that are more comprehensive. India also requires a grading system for business correspondents' certification, from basic to advanced training, to equip them for a variety of financial tasks. Other urgent changes that could increase the business correspondent model's effectiveness include:

• Create a Self-Regulatory Organization for correspondents in business. The BC community would obviously have to take the initiative for this organization, which could be monitored by the RBI or the Indian Banks Association, a federation of banks across India. For efficient monitoring and supervision, the organization would assist in the formulation of a code of conduct and standard operating procedures. It would also serve as the legally recognized interface between the government, banks, the RBI, and BCs.

• Establish a separate organization to perform GPS mapping and geotagging of agent locations for improved monitoring and supervision.

• Comply with BC networks' planned expansion by simultaneously expanding both their customer base and network. Banks must enroll agents with the appropriate skills, mindset, and commitment in order to accomplish this, and they must implement a proper system for training and retraining them. To address the difficulties of transporting cash, banks should also think about providing staffed mobile offices that visit BCs at their locations to settle daily transactions.

• Make transactions take less time to complete to lower agents' incremental costs and make their operations more viable. Using the national digital infrastructure, standardized know-your-customer guidelines, streamlined procedures, and workflow-based solutions could make this easier.

• Empower specialists to source credit with inventive gamble sharing instruments, and work with information examination based advanced credit models. Making credit more accessible, making investments in technology advancement, and increasing revenue are all possible outcomes of this.

• Increase the viability of agents by enhancing BC compensation structures. This will necessitate an in-depth comprehension of agent economics and risk, as the business case for agents is complex. Most of the time, BCs only do things like open new deposit accounts for a commission. After the Jan Dhan Yojana financial inclusion program's success, however, the opportunity to open new deposit accounts has been lost as villages become overcrowded. This needs to change, and since banks can only lend very little through BCs, agents need help creating additional revenue streams.

• Create new technology that will make it possible for a BC to act on behalf of multiple banks. This might only be possible if all of the banks use the same data-sharing platform.

• Use banks to receive all government payments, including those for social security and pensions. This would support the volume of exchanges that happen through BCs and, thus, make the BC model more feasible.

India has a broad organization of BCs - Around 500,000 in country regions and 150,000 in metropolitan regions, just multiple times the quantity of bank offices. The expectation to learn and adapt for them is steep, as is their costs bend assuming that they need to support their activities while simultaneously guaranteeing that their administrations are reasonable to clients. Scale is required to recoup this investment because they require fixed investment and support, both of which come with significant upfront costs. While fixed costs are difficult for small providers to cover, unit costs decrease as more value flows through the system.

The country requires a larger contingent of agents who are skilled, motivated, and educated enough to successfully reach difficult and remote communities. However, BCs' compensation does not appear to be well worth the effort required to onboard these customers and train them to use digital services. Business correspondents, as a result, typically favor oversaturated, well-monetized, and densely populated markets. Due to the increased workload required of BCs, the original business correspondent model of doorstep banking has already been replaced by kiosk-based banking.