The Reserve Bank of India on April 7 released guidelines for banks to set up digital banking units (DBUs). This follows an announcement made in Union Budget 2022-23 on the setting up of 75 DBUs in 75 districts to commemorate 75 years of independence.
In this explainer, Moneycontrol answers key questions on the application and scope of DBU usage in India.
What is a DBU?
A digital banking unit (DBU) is a specialised business unit of a bank that houses certain minimum digital banking products and services. A bank can offer specialised digital products at any time all year from these units and also provide existing financial services products.
What services can a DBU offer?
According to Reserve Bank of India (RBI) guidelines, each DBU must offer certain minimum digital banking products and services on both the assets and liabilities side, including account opening, providing digital kits to customers and merchants, onboarding retail and MSME loan customers, as well as cash withdrawal and deposit services.
With time, the DBUs are expected to migrate from standard offerings to more structured and customised products using the DBU’s hybrid and high-quality interactive capabilities, the RBI said.
What are the pros of DBUs?
Bankers say digital banking units can enable last-mile financial inclusion as a lender can reach a wider customer base in a more cost-effective manner.
“The digital economy is growing rapidly. All parts of the economy, including commerce, financing and logistics, need next-generation solutions. The Government’s focus on training human capital and launching courses in this direction is very welcome. This will also help in reskilling human capital for the new-generation economy,” said Akhil Handa, the Chief Digital Officer of Bank of Baroda.
CredAvenue Founder & CEO Gaurav Kumar says that banks and other financial institutions would independently revisit the new DBU organisational structure from the existing brick-and-mortar structure. He added that they would adopt a blended in-sourced or out-sourced model for operations of the new Digital Banking segment, including DBUs.
What are the cons of DBUs?
The limitations of DBU include low public awareness and internet penetration in lower-tier cities. Further, challenges such as cyber security, data privacy and phishing need to be resolved if DBUs are to reach their full potential, experts say.
Has the DBU concept picked up globally?
According to Kumar, digital banks have been around since 2014-15 in markets such as Hong Kong, Singapore, Malaysia, China, the UK and the US. In the UK, regulators have recognised the Digital Banking business model by issuing banking licenses to banks offering ‘digital-first’/‘digital-only’ propositions within existing regulations and without creating specialist regimes. In Singapore, Hong Kong, and Malaysia, however, there are special digital bank regulatory regimes.
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