Appointment of BC & BF policy

Introduction

In an era of heightened competition, thin profit margins and cost constraints, establishment of conventional bank branches in all locations cannot be a viable proposition. It is, therefore, imperative to explore the possibilities of other cost-effective delivery mechanisms to reach out to remote locations and satisfy the financial needs of client/s at an affordable cost. The concept of Business Correspondent (BC) has been introduced in the banking sector with this end in mind. This is an efficient and effective tool for implementation of Financial Inclusion program of the Government of India. Business Correspondents (BCs) and Business Facilitators are representatives appointed by Bank to act as the agent and provide banking services in remote locations where the Bank does not have a presence in order to promote financial inclusion

Objective

• To increase the outreach of our services by providing comprehensive financial services such as deposits,lending, remittances, and non-banking products at an affordable cost to the financially underprivileged masses across all under-banked and un-banked areas of the country.
• Creating digital banking awareness in unbanked areas and advice on managing money and debt counselling.
• To complement existing branch network of the bank.
• To propagate financial literacy among the masses. To inculcate banking habit among the populace to increase their income and assets and thereby enabling them to contribute to the economic development of the nation.
• To implement Government/RBI directives on financial Inclusion and to achieve the targets assigned to the Bank.

Purpose

The following Business Correspondent models are envisaged:

• Corporate BC – Where Bank appoints a Corporate BC who will act as a Bank representative/agent and provide banking services at various locations including but not limited to unbanked or areas will low branch density.
• Individual BC – Where Bank will appoint individuals who will act as a Bank representative(s)/agent(s) who in turn provide banking at various locations including but not limited to unbanked or areas will low branch density

Eligibility Criterion for the appointment of Business Correspondents and Business Facilitators

The bank can engage with the following individuals and/or entities as BC/BF:

• Companies registered under the Indian Companies Act, 1956 with large and widespread retail outlets, other than Non-Banking Financial Companies (NBFCs).
• Individuals like retired bank employees, retired teachers, retired government employees and exservicemen, individual owners of Kirana/medical/Fair Price shops, individual Public Call Office (PCO) operators, agents of Small Savings schemes of Government of India/Insurance Companies, individuals who own Petrol Pumps, authorized functionaries of well-run Self Help Groups (SHGs) which are linked to banks any other individual including those operating Common Service Centers (CSCs); In case of individuals the following should be ensured:
  • The individual should not be simultaneously working as BC for other Bank/Institution.
  • The individual shall be personally introduced to the villagers by the bank officials in the presence ofvillage elders and Government functionaries in a public meeting so that there is no misrepresentation/impersonation.
• NGOs, Farmers Clubs, Cooperatives, Community based organizations, IT enabled rural outlets of corporate entities, Insurance agents, Well functioning Panchayats, Village Knowledge Centres, Agri Clinics, Agri Business Centres, Krishi Vigyan Kendra/s, KVIC/KVIB units.
• MFIs set up under Societies/Trust Acts and Section 25 of Companies Act.
• Cooperative Societies registered under Mutually Aided Cooperative Societies Acts/Cooperative Societies Acts of States/Multi State Cooperative Societies Act.
• Post Offices; and
• Non-deposit taking NBFCs (NBFCs-ND) subject to the following conditions:
  • There is no comingling of bank funds and those of the NBFC-ND appointed as BC.
  • There will 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.
  • Adequate mechanisms will be required to be built in to 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 doesnot take place.

Selection Criterion and Procedure for Appointing BCs/BFs

• The Bank will set out norms and procedures for selection of BC and BFs. In general, due diligence may be carried out on the individuals/entities to be engaged as BCs prior to their engagement. The due diligence exercise may cover aspects such as:
  • reputation/market standing,
  • financial soundness,
  • management and corporate governance,
  • cash handling ability and
  • ability to implement technology solutions in rendering financial services.
• The Bank willoutline theperiod of appointment,fee structure,scope ofservices,monitoringmechanism, performance indicators in the agreement between Bank and the BC or BF

Scope of Activities

The activities to be undertaken by the BCs/BFs would be within the normal course of banking business. BC’s can be permitted to carry out regular transactions for customers on behalf of the Bank.

The scope of activities of the BC/BF may include the following:

• Identification of borrowers.
• collection and preliminary processing of loan applications including verification of primary information/data.
• creating awareness about savings and other products and education and advice on managing money and debt counselling.
• processing and submission of applications to banks.
• Promoting, nurturing, and monitoring of Self-Help Groups/Joint Liability Groups/Credit Groups/others.
• Post-sanction monitoring.
• Monitoring and handholding of Self-Help Groups/Joint Liability Groups/Credit Groups/others
  • follow-up for recovery,
  • disbursal of retail credit
• recovery of principal/collection of interest.
• collection of retail deposits.
• sale of micro insurance/mutual fund products/pension products/other third-party products.
• receipt and delivery of small value remittances/other payment instruments; and
• distribution of banknotes and coins.

Interoperability of BCs/BFs

Bank will permit interoperability at the retail outlets or sub-agents of BCs (i.e., at the point of customer interface) subject to the following conditions:

• The transactions and authentications at such retail outlets orsub-agents of BCs are carried out online.
• The transactions are carried out on Core Banking Solution (CBS) platform; and
• Bank will take into account the standard operating procedures to be advised by the Indian Banks' Association (IBA) and adopt, as necessary.

Distance Criterion for setting up BC/BF

• To ensure adequate supervision over the operations and activities of the retail outlet/sub-agent of BCs by banks, every retail outlet/sub-agent of BC shall be attached to and be under the oversight of a specific bank branch designated as the base branch.
• To provide operational flexibility and in view of the technological developments in the banking sector, the stipulation regarding the distance criteria has been removed. There is no stipulated distance criteria between the place of business of retail outlet/sub- agent of BC and the base branch to ensure uninterrupted customer service.

KYC:

While BC may collect the proof of identity/proof of address documents from the potential customers for on boarding from the field, the responsibility for ensuring KYC and AML compliance will rest with the Bank.

Agreements:

While drawing up agreements with BCs, bank will adhere to instructions contained in the guidelines issued by RBI on managing risks and code of conduct in outsourcing of financial services. The terms andconditions that governing the contract between the Bank and service provider, should be carefully defined in written agreements, and must be vetted by bank's legal counsel/Team on their legal effect and enforceability. Such agreement should address the risks and risk mitigation strategies. The agreement should be sufficiently flexible to allow the bank to retain an appropriate level of control overthe outsourcing and the right to intervene with appropriate measures to meet legal and regulatory obligations.

The contract/agreement must incorporate the following:

• Define what activities are going to be outsourced including appropriate service and performance standards.
• Provide for continuous monitoring and assessment by the bank of the outsourced corporate BC so that any necessary corrective measure can be taken immediately.
• Bank has the ability to access all books, records, and information relevant to the outsourced activity available with the service provider.
• A termination clause and minimum periodsto execute a termination provision, if deemed necessary, should be included.
• Controls to ensure customer data confidentiality and service providers' liability in case of breach of security and leakage of confidential customer related information
• Contingency plans to ensure business continuity.
• Provide for the prior approval/consent by the bank of the use of subcontractors by the service provider for all or part of an outsourced activity.
• Provide the bank with the right to conduct audits on the service provider whether by the internal or external auditors, or by agents appointed to act on Bank’s behalf and to obtain copies of any audit or review reports and findings made on the service provider in conjunction with the services performed for the bank.
• Include clausesto allow the RBI or persons authorized by it to accessthe bank’s documents, records of transactions, and other necessary information given to, stored, or processed by the service provider within a reasonable time.
• Include clause to recognize the right of the Reserve Bank to cause an inspection to be made of a service provider of a bank and the books and account by one or more of its officers or employees or other persons.
• Confidentiality of the customer’s information should be maintained even after the contract expires or gets terminated.
• Provide for the preservation of documents and data by the service provider in accordance with the legal/regulatory obligation of the bank in this regard.

Commission/Fee Structure

Bank shall pay reasonable commission/fee to the BC/BF. The rate and quantum ofthe commission/fee may be reviewed periodically as per the agreement. Bank will aim to devise appropriate commission/fee structure for corporate and individual BCs basis the following parameters:

• Commission structure or incentive mechanism shall be devised in a manner that mere increase in the number of clients/customers served, or the transaction volume will not drive the commission.
• The remuneration should combine fixed and variable parts dependent, inter-alia, on some indication or measure of customer satisfaction.
• Bank will try to ensure that some part of the remuneration could be deferred or clawed back in case of deficiency of service subject to agreement between the Bank and BC.
• The agreement with the BC will specifically prohibit them from charging any fee to the customers directly for services rendered by them on behalf of the Bank. However, the bank has a right to collect reasonableservice charges from the customers in a transparent manner

Monitoring and Risk Management

As Bank runs the reputational risk while managing the BC, Head Office and branches will closely watch and monitor the activities of BC engaged by them. Bank will ensure the following:

• The primary role of BC isto provide doorstep services to the customers of the Bank. Therefore, nonperformance by any of the BCs shall be viewed seriously by the Bank.
• BC is not working in the branch in the place of regular staff.
• BC is not involved in day-to-day functioning/operations of the branch and there will be a clear demarcation for his area of operation.
• The designated officer of the base branch can make surprise visit at BC location every month to check physical verification of cash with BC and also to interact with the customers for getting feedback on the service quality of the BC.
• Bank will adopt technology-based solutions for managing the risk, besides increasing the outreach in a cost-effective manner. The transaction will be put through ICT devices(handheld device/mobile phone) that are seamlessly integrated to the Core Banking Solution (CBS) of the bank. The transactions will be accounted for on a real-time basis and the customers will receive immediate verification of their transactions through visuals (screen based) or other means.

Customer Service

Customer satisfaction is of supreme importance while rendering Banking Services. The Bank would takeall steps to protect the interests of the customers and to ensure fair, transparent, and prompt delivery of services through BC/BF Channel and all the services rendered by BCs and BFs shall be covered under customer service policy of the Bank.

Policy Review and Updates

This Board approved policy will be reviewed as and when required or at least on an annual basis for incorporating changes in appointing BCs and BFs and regulatory updates, if any.