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RBI/2005-06/288
DBOD.No.BL.BC. 58/22.01.001/2005-2006
January 25, 2006
Magha 5, 1927 (S)
The Chairmen & CEOs
(All Scheduled Commercial Banks including RRBs)
Dear Sir,
Financial Inclusion by Extension of Banking
Services - Use of Business Facilitators and Correspondents
With the objective of ensuring greater financial
inclusion and increasing the outreach of the banking sector, it has been
decided in public interest to enable banks to use the services of Non-Governmental
Organisations/ Self Help Groups (NGOs/ SHGs), Micro Finance Institutions (MFIs)
and other Civil Society Organisations (CSOs) as intermediaries in providing
financial and banking services through the use of Business Facilitator and Correspondent
models as indicated below.
2. Business Facilitator Model: Eligible
Entities and Scope of Activities
2.1 Under the
"Business Facilitator" model, banks may use intermediaries, such as,
NGOs/ Farmers' Clubs, cooperatives, community based organisations, IT enabled
rural outlets of corporate entities, Post Offices, insurance agents, well functioning
Panchayats, Village Knowledge Centres, Agri Clinics/ Agri Business Centers,
Krishi Vigyan Kendras and KVIC/ KVIB units, depending on the comfort level of
the bank, for providing facilitation services. Such services may include (i)
identification of borrowers and fitment of activities; (ii) collection and
preliminary processing of loan applications
including verification
of primary information/data; (iii)
creating awareness about savings and other products and education and advice
on managing money and debt counselling; (iv) processing and submission
of applications to banks; (v) promotion and nurturing Self Help Groups/
Joint Liability Groups; (vi) post-sanction monitoring; (vii) monitoring
and handholding of Self Help Groups/ Joint Liability Groups/ Credit Groups/
others; and (viii) follow-up for recovery.
2.2 As these
services are not intended to
involve the conduct of banking business by Business Facilitators, no approval
is required from RBI for using the above intermediaries for facilitation
of the services indicated above.
3. Business Correspondent Model:
Eligible Entities and Scope of Activities
3.1 Under the 'Business Correspondent'
Model, NGOs/ MFIs set up under Societies/ Trust Acts, Societies registered under
Mutually Aided Cooperative Societies Acts or the Cooperative Societies
Acts of States, section 25 companies, registered NBFCs not accepting public
deposits and Post Offices may act as Business Correspondents. Banks may
conduct thorough due diligence on such entities keeping in view the indicative
parameters given in Annex 3.2 of the Report of the Internal Group appointed
by Reserve Bank of India (available
on RBI website: www.rbi.org.in) to examine issues relating to
Rural Credit and Micro-Finance (July 2005). In engaging such intermediaries
as Business Correspondents, banks should ensure that they are well established,
enjoying good reputation and having the confidence of the local people. Banks
may give wide publicity in the locality about the intermediary engaged by them
as Business Correspondent and take measures to avoid being misrepresented.
3.2 In addition to activities
listed under the Business Facilitator Model, the scope of activities to
be undertaken by the Business Correspondents will include (i) disbursal of small
value credit, (ii) recovery of principal / collection of interest
(iii) collection of small value deposits (iv) sale of micro insurance/ mutual
fund products/ pension products/ other third party products and (v) receipt
and delivery of small value remittances/ other payment instruments.
3.3 The
activities to be undertaken by the Business Correspondents would be within the
normal course
of the bank's banking business, but conducted through the entities indicated
above at places other than the bank premises. Accordingly, in furtherance of
the objective of increasing the outreach of the banks for
micro-finance, in public interest, the Reserve
Bank hereby permits banks to formulate a scheme for using the entities indicated
in paragraph 3.1 above as Business
Correspondents. Banks should ensure
that the scheme formulated and implemented is in strict compliance with the
objectives and parameters
laid down in this circular.
4. Payment of commission/ fees for
engagement of Business Facilitators/ Correspondents
Banks may pay reasonable commission/ fee to
the Business Facilitators/ Correspondents, the rate and quantum of which may
be reviewed periodically. RBI Master Circular DBOD.Dir.5/13.07.00/2005-06
dated July 1, 2005 may be treated as modified to that extent. The agreement
with the Business Facilitators/ Correspondents should specifically prohibit
them from charging any fee to the customers directly for services rendered by
them on behalf of the bank.
5. Other Terms and Conditions for
Engagement of Business Facilitators and Correspondents
5.1 As the engagement of intermediaries as Business
Facilitators/ Correspondents involves significant reputational, legal and operational
risks, due consideration should be given by banks to those risks. They should
also endeavour to adopt technology-based solutions for managing the risk, besides
increasing the outreach in a cost effective manner. In formulating their schemes,
banks may be guided by the recommendations made in the Khan Group Report as
also the draft outsourcing
guidelines released by Reserve Bank of India on December 6, 2005 (available
on RBI website: www.rbi.org.in).
5.2 The arrangements with the Business Correspondents shall
specify:
a. suitable limits on cash holding by intermediaries as also
limits on individual customer payments and receipts,
b. the requirement that the transactions are accounted for
and reflected in the bank's books by end of day or next working day,
and
c. all agreements/ contracts with the customer shall clearly
specify that the bank is responsible to the customer for acts of omission
and commission of the Business Facilitator/ Correspondent.
6. Redressal of Grievances in regard
to services rendered by Business Facilitators/ Correspondents
a. Banks should constitute Grievance Redressal
Machinery within the bank for redressing complaints about services rendered
by Business Correspondents and Facilitators and give wide publicity about
it through electronic and print media. The name and contact number of designated
Grievance Redressal Officer of the bank should be made known and widely publicised.
The designated officer should ensure that genuine grievances of customers
are redressed promptly.
b. The grievance redressal procedure of the
bank and the time frame fixed for responding to the complaints should be placed
on the bank's website.
c. If a complainant does not get satisfactory
response from the bank within 60 days from the date of his lodging the compliant,
he will have the option to approach the Office of the Banking Ombudsman concerned
for redressal of his grievance/s.
7. Compliance with Know Your
Customer (KYC) Norms
Compliance with KYC norms will continue to be
the responsibility of banks. Since the objective is to extend savings
and loan facilities to the underprivileged and unbanked population, banks
may adopt a flexible approach within the parameters of guidelines issued on
KYC from time to time. The KYC guidelines issued vide our circulars dated
November 29, 2004
and August 23, 2005
provide sufficient flexibility to banks. In addition to introduction from any
person on whom KYC has been done, banks can also rely on certificates of identification
issued by the intermediary being used as Banking Correspondent, Block Development
Officer (BDO), head of Village Panchayat, Post Master of the post office
concerned or any other public functionary, known to the bank.
Yours faithfully,
(P. Vijaya Bhaskar)
Chief General Manager
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