Financial inclusion is a key goal of the Indian banking system, and the Banking Correspondent (BC) model has been one of the most practical solutions to reach the unbanked population. Despite rapid growth in bank branches, ATMs, and digital services, many rural and semi-urban areas still lack adequate banking facilities. To address this, the Reserve Bank of India (RBI) in January 2006 introduced a framework allowing banks to appoint Business Correspondents (BCs) and Business Facilitators (BFs).
What are Banking Correspondents?
Banking Correspondents are retail agents engaged by banks to provide financial services at locations other than a bank branch or ATM. They serve as representatives of banks and offer limited banking and financial services on their behalf.
- They enable people to open accounts, deposit and withdraw cash, transfer money, and avail micro-loans without visiting a branch.
- They are usually local shopkeepers, NGOs, MFIs, self-help groups, or even individuals like retired teachers who are trusted within their communities.
- The BC model helps banks reduce operating costs, while customers benefit from convenience and accessibility.
History and Evolution of Banking Correspondents in India
The Banking Correspondent model was introduced in 2006 as part of RBI’s strategy to achieve inclusive growth.
- 2006: RBI permitted banks to engage BCs and BFs for providing basic services. Initially, NGOs, MFIs, and cooperatives were allowed.
- 2008–2010: The scope was widened to include retired bank employees, ex-servicemen, shopkeepers, PCO operators, and agents of telecom companies.
- 2014 onwards: With the launch of Pradhan Mantri Jan Dhan Yojana (PMJDY), BCs played a huge role in opening millions of no-frills accounts across rural India.
- Current Status: Banks now employ lakhs of BCs across villages, and even large corporates like Airtel, Vodafone, ITC, HUL, and India Post Payments Bank use their distribution networks to provide BC services.
Examples of Banking Correspondents in India
To understand the practical application, let’s look at some real-world examples:
- FINO PayTech & EKO: Early fintech-driven BC service providers.
- Oxigen Services: Leveraged digital payment infrastructure for BC operations.
- Telecom firms (Vodafone, Airtel): Used mobile distribution networks to reach rural areas.
- India Post Payments Bank (IPPB): Uses its 1.55 lakh post offices and 3 lakh postal workers as BC agents.
- FMCG companies (ITC, HUL): Exploring BC operations through their deep rural penetration networks.
Products and Services Provided by Banking Correspondents
Banking Correspondents are authorized by RBI to provide a range of small-ticket financial services. This allows rural households to engage in banking with minimal cost and effort.
- Savings Facilities: Opening and operating small savings accounts with low or zero balance.
- Deposits: Accepting fixed and recurring deposits of small amounts.
- Cash Transactions: Facilitating cash-in and cash-out services at customer-friendly locations.
- Remittances: Enabling domestic fund transfers within the BC network.
- Credit Services: Providing micro-credit and small loans.
- Insurance & Pension Products: Cross-selling approved general insurance, mutual funds, and pension products.
- Account Information: Issuing mini-statements and balance updates for customers.
Role and Functions of Banking Correspondents
BCs act as the bridge between banks and customers, performing both operational and awareness roles.
1. Financial Awareness
- Educating rural households about the importance of savings, formal borrowing, and debt management.
- Promoting government financial schemes like PMJDY, PMJJBY, and APY.
2. Customer Identification & KYC
- Identifying potential customers and completing Know Your Customer (KYC) processes.
3. Banking Transactions
- Collecting deposits and allowing withdrawals (₹0–₹2000 per transaction).
- Furnishing mini account statements and transaction updates.
4. Loan & Credit Support
- Assisting banks in identifying borrowers for small-ticket loans.
- Helping in recovery of overdue loans.
5. Cross-Selling
- Offering additional products like insurance, pensions, and mutual funds as authorized by banks.
How Do Banking Correspondents Earn Income?
The BC model is commission-based, which means their income depends on performance.
- Commission is paid for services like opening new accounts, enabling money transfers, loan sanctioning, and cross-selling financial products.
- Banks decide the commission structure and review it periodically.
- RBI prohibits BCs from charging customers directly for their services.
Challenges Faced by Banking Correspondents
Despite its importance, the BC model has not fully achieved its objectives.
1. Low Compensation: Commissions are small and sometimes reduced due to cost-cutting in public sector banks.
2. Limited Lending Role: Most BCs focus only on opening deposit accounts rather than facilitating loans.
3. Overwork: One person often plays the role of cashier, clerk, advisor, and manager.
4. Misaligned Incentives: BCs prefer cross-selling products (insurance, mutual funds) over basic banking because of higher commissions.
5. Low Awareness: Many rural customers are unaware of BC services, leading to poor utilization.
6. Security & Trust Issues: Some people still prefer informal moneylenders due to long-standing trust.
7. High Attrition: Many BCs leave due to low income, leading to service gaps.
Banking Correspondents vs. Business Facilitators (Comparison)
Since both models were introduced together in 2006, exams often ask about their difference.
| Feature | Banking Correspondents (BCs) | Business Facilitators (BFs) |
| Services | Conduct basic banking transactions (cash in/out, deposits, remittances) | Only act as advisors/facilitators, no cash handling |
| Remuneration | Commission-based, paid by banks | Fee-based, paid by banks |
| Risk Handling | Directly handle financial transactions | Do not handle money directly |
| Customer Interaction | High, as they deal in day-to-day banking | Limited, only guide customers |
| Examples | NGOs, shopkeepers, postmen | MFIs, SHGs, Farmer Clubs |
Practice Questions on Banking Correspondents
Q1. In which year did RBI introduce the banking correspondent model?
- (a) 2002
- (b) 2004
- (c) 2006
- (d) 2008
Answer: (c) 2006
Q2. What is the primary aim of introducing BCs?
- (a) To reduce NPAs
- (b) To promote financial inclusion
- (c) To improve foreign investment
- (d) To privatize banks
Answer: (b) To promote financial inclusion
Q3. Which of the following entities can act as BCs?
- (a) NGOs
- (b) Self-Help Groups
- (c) Individuals like shopkeepers
- (d) All of the above
Answer: (d) All of the above
Q4. The maximum transaction limit for BCs per customer per day (RBI guideline) is:
- (a) ₹1000
- (b) ₹2000
- (c) ₹5000
- (d) ₹10,000
Answer: (b) ₹2000
Q5. Which of the following services is NOT provided by BCs?
- (a) Cash withdrawal
- (b) Account opening
- (c) Furnishing mini-statements
- (d) Levying direct fees from customers
Answer: (d) Levying direct fees from customers
Q6. Which company was among the first to act as a BC in India?
- (a) HUL
- (b) Airtel
- (c) FINO PayTech
- (d) India Post
Answer: (c) FINO PayTech
Q7. India Post Payments Bank uses which network for BC services?
- (a) Mobile operators
- (b) Post offices and postmen
- (c) ATMs
- (d) Microfinance institutions
Answer: (b) Post offices and postmen
Q8. Which of the following is a challenge for BCs?
- (a) High commission structure
- (b) Lack of customer awareness
- (c) Excessive staff support
- (d) Limited workload
Answer: (b) Lack of customer awareness
Q9. Who pays the BCs for their services?
- (a) RBI
- (b) Customers
- (c) Banks employing them
- (d) NABARD
Answer: (c) Banks employing them
Q10. What is the key difference between BCs and BFs?
- (a) BCs handle cash, BFs do not
- (b) BFs can sanction loans, BCs cannot
- (c) BCs are fee-based, BFs are commission-based
- (d) Both handle cash transactions
Answer: (a) BCs handle cash, BFs do not
FAQs
A Banking Correspondent (BC) acts as an agent of the bank to deliver financial services like deposits, withdrawals, remittances, and micro-credit in unbanked rural areas. BCs are crucial for financial inclusion in India as they provide doorstep banking where branches are absent.
As per RBI guidelines on Banking Correspondents, entities like NGOs, self-help groups (SHGs), microfinance institutions (MFIs), cooperative societies, shopkeepers, retired teachers, ex-servicemen, and even large corporates like India Post and telecom companies can be appointed as BCs.
Banking Correspondents provide basic banking services such as opening small savings accounts, accepting deposits, facilitating withdrawals, enabling remittances, offering micro-credit, cross-selling insurance and pension products, and issuing mini account statements to rural customers.
The remuneration of Banking Correspondents is commission-based. They earn commission for activities like account opening, transactions, loan facilitation, and cross-selling products. Importantly, they cannot charge customers directly; only banks pay them as per RBI norms.
Some key challenges of Banking Correspondents in India include low compensation, high workload, poor customer awareness, preference for cross-selling over basic banking, limited lending role, and high attrition due to inadequate financial incentives.
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