RBI panel suggests appointment of business correspondents to boost banks' rural lending

A working group set up by the Reserve Bank of India has recommended the appointment of business correspondents (BCs) for banks in rural and semi-urban areas to facilitate financial inclusion.

The working group headed by C Rangarajan, chief economic advisor to the prime minister, has identified individual shop owners, public call office operators, agents of government-run small savings schemes and insurance companies, petrol pump owners, retired teachers, authorised functionaries of well-run self help groups linked to banks, non-deposit taking NBFCs whose micro finance portfolio is not less than 80 per cent of their loan outstanding for appointment as business correspondents in the financially excluded districts.

While the traditional 'brick and mortar' branches could penetrate into remote areas of the vast country only to a limited extent, the RBI panel said the BC model presented banks with a workable option to provide banking services in inaccessible areas in a cost-effective manner and is extremely vital for achieving the goals of financial inclusion. 

BCs should be used not only for opening and servicing no-frills accounts but for the full range of financial activities, the working group has noted.

"Further, with the central and state governments planning to route various government payments through the banking system, the BCs could be the ideal medium for the banks to handle the huge volumes of low value transactions," the RBI panel said.

"As experience showed, the BC model coupled with ICT solutions could help banks substantially increase their outreach facilitating financial inclusion," it said.