A well-executed financial inclusion policy boosts economic growth and reduces poverty and income inequality at the same time. As per the recent SBI report, PMJDY accounts, launched in 2014, have paved the way for greater financial inclusion in India, thanks to a robust digital infrastructure and rigorous branch recalibrating, allowing the Banking Correspondent (BC) model to be used prudently.

Key findings

– Between 2015 and 2020, the number of mobile and online banking transactions per 1,000 adults has risen from 183 in 2015 to 13,615 in 2019, an increase of more than 1,300 each year.

– The report highlighted that, in 2020, there were 14.7 bank branches for every 100,000 adults, which is more than Germany, China, and South Africa.

– Further, crime rates have dropped significantly in states with higher PMJDY account balances, according to SBI’s research.

– In states where more PMJDY accounts are formed, the research shows a statistically significant and economically substantial decrease in the consumption of intoxicants like alcohol and cigarette goods.

That said, the research made a case that the success of financial inclusion is backed by the banking correspondent (BC), who are micro-level entrepreneurs.

So how does the BC model works?

While a BC can work for more than one bank under the BC Model, a retail outlet or a sub-agent of a BC must represent and provide banking services for just one bank at the point of client interface, according to RBI guidelines. A number of prerequisites must be met before RBI approves transaction interoperability at retail stores or BC sub-agents (i.e., the point of client contact).

BC model challenges

To achieve financial inclusion, micro-entrepreneurs must succeed. According to RBI standards, a retail outlet or a sub-agent of a BC shall represent and provide banking services for only one bank at the point of client interface when a BC can be a BC for more than one bank under the BC model. RBI set a few conditions for the interoperability of transactions at retail outlets or subagents of BCs (i.e., at the point of client contact).

In some cases, however, it is noted that BCs from different banks do not conform to the rules mentioned above in the same way. Other banks prefer the ‘Branch Less/Corporate BC approach,’ whereas PSBs prefer the ‘Branch Led BC model.’

The BCs of PSBs provide all essential banking services, including account opening, from a single location under the supervision of a single bank branch. Under the bank-led BC model, it is estimated that a kiosk will require a capital cost of between Rs. 1.0-1.5 lakh. The report research recommended a need for rationalisation as there is no level playing field when it comes to the infrastructure provided to all banks.

“Indian economy is at the cusp of becoming a more efficient and formal one. We strongly believe some minor tweaks in the existing branch-less BC model could act as a multiplier for promoting financial inclusion objectives. This is all the more important as we are currently formalising 34.7 crores of the informal labour force through the E-Shram portal,” noted the report.