MONTHLY ARCHIVES: JUNE, 2014
Over the past few months, the RBI has been pro-actively moving to relax and refine the inclusion processEarlier this month, the KYC requirement was simplified and yesterday's notification made two important modifications in the business correspondent model:
1.Non-bank NBFCs are now allowed to become BCs for banksThis is in line with the Mor Committee recommendations.
It has been decided that banks will be permitted to engage non-deposit taking NBFCs (NBFCs-ND) as BCs, subject to the following conditions:
a) It should be ensured that there is no comingling of bank funds and those of the NBFC-ND appointed as BC.
b) There should be a specific contractual arrangement between the bank and the NBFC-ND to ensure that all possible conflicts of interest are adequately taken care of.
c) Banks should ensure that the NBFC-ND does not adopt any restrictive practice 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 does not take place.
2.The requirement that a banking agent be within 30 km of a branch has been removed.
With a view to providing operational flexibility to banks and in view of the technological developments in the banking sector, it has been decided to remove the stipulation regarding distance criteriaThe banks should, however, while formulating the Board approved policy for engaging BCs, keep in mind the objectives of adequate oversight of the BCs as well as provision of services to customers while deciding how to modify extant distance criteria.
As a regulator the RBI has the challenge of balancing opening out the space to other players with the risks that can come with lax supervision and monitoringHowever, as technology and connectivity improve even in the rural areas, the focus has to be on banks to manage their own operations, with stringent reporting of transaction monitoring.
The 30 km criterion was an operational restriction, that gave an advantage to the larger banks that already had a wide branch network in placeWith the removal of this stipulation, banks will have the freedom to place their agents in line with their business strategy.
Even as these modifications have been made, the RBI is also trying to resolve the tussles between the banks and the BC agentsThe relationship, unfortunately, is not one of synergy and in some cases branch managers have reportedly worked to restrict the operations of profitable agentsIn April, the RBI stepped in to address the issue of cash management:
after opening of large number of banking outlets in the last three years in hitherto unbanked areas of the country through the BC-ICT model, the time has come to monitor the usage in terms of transactions per BC so as to ensure sustainability of the BC modelOne of the critical issues identified in this regard has been of Cash Management of BCs.
3.The insistence by banks on BCs to fully prefund their accounts even after considerably long business relationship has become a major impediment in scaling up operations of BCsSimilarly, low/delayed payment of remuneration of BCs and passing on the responsibility of insuring cash to BCs have also been proving to be irritants in increasing the usage in large number of bank accounts openedIt is, therefore, important for banks to recognize that cash handled by BCs, while doing banking business on behalf of the Bank, is Bank's CashIn view of the above and with a view to scale up the BC model it has been decided that:-
It is a pity that the RBI has to step into such operational issues and mandate that the top management of banks look into such crucial problems Even as the banks may resent what they perceive as RBI interference in their operations, it is high time they realised that the health of their agents is key for sustaining a relationship with the unbankedIt is high time that this message goes through to the lowest rung of bank staff.
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The RBI has relaxed address proof requirements for opening bank accountsThe notification said,
Reserve Bank has been receiving representations/references from various quarters’ especially migrant workers, transferred employees, etcregarding problems faced in submitting a proof of current/permanent address while opening a bank accountThe matter has since been examined in the light of amendment to the Prevention of Money Laundering Rules (Maintenance of Records), 2005, and accordingly it has been decided to simplify the requirement of submission of ‘proof of address’ as follows:
It is important that these orders go through right down to the branch staff and BC agentsOften orders passed by the RBI are not communicated effectively to the last mile.
The current emphasis on documents gives customers significant problems while opening new accountsWhile heavy KYC norms are in order to comply with Anti-Money Laundering (AML) Standards/Combating of Financing of Terrorism (CFT)/Obligations under Prevention of Money Laundering Act (PMLA), 2002 etc, the next step will be for the banks to move in for transaction monitoring to ensure that the flows are being used for legitimate purposes, as recommended by FATF and the Mor Committee as well.
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In a news report today, the High Level Committee on direct transfers for LPG cylinders has castigated the 'undue haste to garner political mileage from the 'cash in hand' element of a crucial programme that could have curtailed India's subsidy bill significantly, if it was instead carried out in a well-planned manner.
We have recommended making the scheme more user-friendly, as the scheme is a good idea but must be pursued only after refinements and improvements in the system, said a committee member, requesting anonymityThe scheme was launched in haste, without enough coordination among different agencies including the banks who were non-cooperativeEnrollment and authentication should be made easier and people shouldn't be harassed, he added.
In a recent study of electronic G2P payments in low income countries, CGAP has pointed to exactly the same challenges, setting out five lessons that make up the basic principles that India's new government should follow to achieve an effective DBT programme.
India has much to lose if it doesn't work on getting its DBT programme right. A McKinsey (2011) study estimated that connecting every Indian household to a digital payment system and automating government payment flows would save the government $22 billion per year, equal to 8% of the total flows between the Indian government and its citizens80% of these savings would come from reduced leakages to unintended recipientsThe remaining savings would come from the lower administrative cost of making payments digitally rather than in cash or checks. A recent randomized control trial in Andhra Pradesh found that migrating National Rural Employment Guarantee Scheme (NREGS) payments into digital channels reduced payment leakages by $38.7 million per annum, which is nine times the cost of implementing the new payment scheme.
It remains to be seen how the new government gets the programme going again!
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