RBI relaxes norms for Business Correspondents

Mumbai: To accelerate the flow of credit to those at the bottom of the pyramid, the Reserve Bank of India on Tuesday permitted banks to engage non-deposit taking non-banking finance companies (NBFC-ND) as Business Correspondents (BCs).

Further, to enlarge the catchment area of BCs, the central bank has done away with the stipulation regarding the distance criteria between the place of business of a retail outlet/sub-agent of BC and the bank’s base branch.

BCs usually offer services such as disbursal of small value credit; recovery of principal/collection of interest; collection of small-value deposits; sale of micro insurance/mutual fund products; pension products; other third-party products; receipt and delivery of small-value remittances; and other payment instruments.

The RBI said banks can engage NBFC-ND as BCs only if they fulfil certain criteria, including ensuring that there is no co-mingling of bank funds and those of the NBFC-ND.

Contractual arrangement

Further, there should be a specific contractual arrangement between the bank and the NBFC-ND to ensure that all possible conflicts of interest are adequately addressed.

Banks should also ensure that the NBFC-ND does not adopt any restrictive practices such as offering savings or remittance functions only to its own customers, and forced bundling of services offered by the NBFC-ND and the bank.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.