Appointment of BC & BF policy

Introduction

As per Bank’s strategy to reach out to masses, Shivalik Bank has onboarded Corporate Business Correspondent (BC) partners to offer the banking products Bank is partnering with multiple BC partners to reach out to customers across geographies and diversified product segments. Bank has onboarded different BC partners as per prevailing regulatory guidelines and has leveraged their outreach in newer geographies with cost effective delivery mechanism

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
• Individuals like retired bank employees, retired teachers, retired government employees and ex- servicemen, 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 retail outlet /sub agent of BC/Individuals shall personally be introduced to the villagers by the bank officials in the presence of village 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 does not 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 will outline the period of appointment, fee structure, scope of services, monitoring mechanism, 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. BCs 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/collections
• 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.
• The activities to be undertaken by the BCs would be within the normal course of the bank's banking business. BC Branch Timings should be clearly mentioned on BC Branch Notice Board
• Preservation and Protection of the security and confidentiality of customer information to be adhered strictly. Suitable limits on cash holding by intermediaries as also limits on individual customer payments and receipts; to be defined for respective product categories.
• For cash collection, customer should be acknowledged by issuing a receipt (Physical/Digital) on behalf of the Bank
• BC to adhere that all off-line transactions are accounted for and should get reflected in the books of the bank by the end of the day. BC may remit this amount by next working day, however entries in respective customer account will get reflected in same day when customer has performed offline transaction.
• Business Correspondent partner to sell only those products which are approved by the Bank and BC should not introduce any product/process without approval of the Bank
• Each retail outlet/sub-agent should have a uniform signage which needs to be Co-Branded indicating their status as service providers for the bank.
• Financial services offered by the retail outlets/sub-agents of the Business Correspondent should not be tied to the sale of any product by its own, without explicit approval from Bank.
• The charges applicable on different financial products should be made available at the retail outlets/with the sub-agents of the Business Correspondent
• In case a Business Correspondent partner is engaged as BC by more than one bank, it should be ensured that the customer database and account details are kept separate and there is no co-mingling of data. The same customers cannot be offered same lending product by multiple lending partners of same BC.
• BC’s to conduct Financial literacy/ Customer education programs and should form an important part of the business strategy
• BC’s may scale up their efforts substantially towards educating their clientele in their respective vernacular languages regarding the benefits of banking habit.
• All the BC’s customer facing employees should complete the BC certification as defined by IBA/regulator.
• Any other activity within the regulatory guidelines, as decided by Bank from time to time.

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 or sub-agents of BCs are carried out on-line.
• 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.
• While a BC can be a BC for more than one bank, at the point of customer interface, a retail outlet or a sub-agent of a BC shall represent and provide banking services of only one bank.
• The terms and conditions governing the contract between the bank and the BC should be carefully defined in written agreements and subjected to a thorough legal vetting.
• While drawing up agreements, banks should strictly adhere to instructions contained in the guidelines on managing risks and code of conduct in outsourcing of financial services by banks, issued by Reserve Bank of India.
• The banks will be fully responsible for the actions of the BCs and their retail outlets / sub agents. 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 Correspondent.
• The banks should develop suitable training modules in the local language(s) in order to provide proper attitudinal orientation and skills to the BCs/sub-agents.
• The bank should have necessary Business Continuity Plan (BCP) in place to ensure uninterrupted service in case the arrangement with the Corporate BC’s / sub-agents are terminated.
• Banks may continue to take measures to address possible reputational risks arising out of appointment and functioning of Business Correspondent Partners

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 as released from time to time followed on customers/accounts sourced through BC channel. Shivalik Bank will adopt a flexible yet compliant approach within the parameters of guidelines issued on KYC from time to time. These approaches are communicated by compliance team to various businesses from time to time.

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 and conditions 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 over the 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 periods to 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 clauses to allow the RBI or persons authorized by it to access the 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 of the 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 a 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.
• The 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 the 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 reasonable service 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: These are broad parameters basis which BC performance will be defined.

• The primary role of BC is to provide doorstep services to the customers of the Bank. Therefore, non- performance 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/ relevant person from FIG team 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.
• Bank should carry out a detailed review of the performance of BC’s engaged by them, at least once a Year with the Senior Management of the BC

Customer Service

Customer satisfaction is of supreme importance while rendering Banking Services. The Bank would take all 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.

• Details such as telephone number of the base branch/controlling office of the bank and the Banking Ombudsman and the fees for all services available at the Business Correspondent Branch.
• Information regarding BCs engaged by banks may be placed on the respective banks' website

Grievance Redressal Mechanism

The banks should constitute Grievance Redressal Mechanism within the bank for redressing complaints about services rendered by the BCs and give wide publicity about it through electronic and print media and should put in Grievance Redressal mechanism and details in BC outlets. The name and contact number of designated Grievance Redressal Officer of the bank should be made known and widely publicized. The designated officer should ensure that genuine grievances of customers are redressed promptly. 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. If a complainant does not get satisfactory response from the bank within 30 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

Exit /Termination of BC

• As service of BCs is liable for termination as per terms and conditions of agreement between BC’s and Bank
• BCs shall cease to use in any manner whatsoever the name of the Bank its corporate logo in any correspondence as per agreement
• BCs should return to Bank or dispose of or destroy as the Bank may direct all information/documents/literature/gadgets provided by Shivalik Small Finance Bank
• Bank is at liberty to make announcement to the public about termination of the BCs with/without mentioning the reason as per the agreement.
• Other terms and conditions of Exit/termination of BC mentioned in the agreement would be applicable

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.