The Reserve Bank of India’s Annual Report 2021-22 released last month has a stunning piece of new data showing an astounding rise in the aggregate number of Business Correspondents (BCs) in the country over the last year. While the number of BC outlets in villages increased from 1,194,640 in December 2020 to 1,844,732 in December 2021, the hike was more dramatic in urban areas from 324,507 to 1,412,529.
The footnotes to Table IV.6 state that the data for December 2021 are provisional, and that “There is a significant increase in data reported by few private sector banks.” It is extremely surprising that the rise from 1.5 million BCs in India to 3.2 million in one year has been attributed to better data reporting by “few private sector banks”. It is also curious that no additional information is provided in the section.
The issue of improved data metrics for financial inclusion has been flagged by many, including us at the Indicus Centre for Financial Inclusion (ICFI) for many years. Financial inclusion is a national policy objective, and in a large heterogeneous country like India, it is imperative that granular data is monitored regularly by the government and the RBI. The BCs are the mainstay of financial inclusion, accounting for more than 95 percent of the banking outlets in rural India, and play a critical role in ensuring that government welfare payments reach beneficiaries in villages.
However, while the Pradhan Mantri Jan Dhan Yojana (PMJDY) has ensured widespread access to banking, there are still some gaps on the ground. In a recent study by Dvara Research across seven states, almost 50 percent of respondents who had a problem during cash withdrawal of their government benefits cited ‘Cash-out point far away’ as their issue. Unless there is geographically granular data throwing a spotlight on specific locations that lack active outlets, such issues will go unaddressed, leading to grievances among beneficiaries. In March, the RBI announced the framework for geo-tagging payment system touch points, this should be used to identify the specific problem locations.
While more than three-fourths of the PMJDY accounts have been opened by public sector banks, if a significantly large share of the BCs is with the private sector banks, as the latest RBI data seem to suggest, there are a number of implications for the ecosystem. For instance, it may be time to relook the current structure of interchange fees paid out by the account opening bank to the BC when a customer makes a transaction at an outlet/micro-ATM that does not belong to the account opening bank.
As flagged by the SBI Ecowrap in November 2021, with the distribution of BCs skewed towards private sector banks and distribution of account opening banks skewed towards public sector banks, the latter are estimated to be paying out Rs 600-700 crore annually as interchange fees, even while they bear the costs of operation of the accounts. Correct data is key to an appropriate fee structure, which affects the operational viability of the entire network involved in welfare payouts and financial inclusion. Without viability, service quality is bound to be hit at the last mile.
There is a wealth of information that the RBI can collate that can inform policy decisions as well as product and service offerings by industry. This includes data on active/dormant agents, usage of accounts, the quality of service/transactions, etc. Granular data on geographies is critical as mentioned above. The recent BCG-PhonePe Pulse report on digital payments has an excellent map showing the uneven adoption of digital payments across time in different states — this is the kind of analysis that the RBI can facilitate at the district level. Then there is long-pending ask for gender-disaggregated data. While the gender-gap and specific challenges that women face in accessing financial services are well known, there is no data available even on something as basic as the number of women BCs in India.
In 2015, a recommendation proposed by ICFI was picked up by the RBI Committee on Medium Term Path for Financial Inclusion for “a unified, harmonised database of the financial inclusion footprint, in terms of outlets, service points, devices, connectivity and BC networks, aggregated and monitored by a single source” (Indicus Policy Brief November, 2015). The Indian Banks Association (IBA) was given the responsibility to set up an online BC registry. However, the database is not available in the public domain. Given the latest disclosure in the annual report, it appears that even this registry does not seem to be functioning as it was intended by the RBI.
The Department of Financial Services set up a Working Group in December to identify the gaps in the BC ecosystem, the report is to be finalised. It is high time that the government, the RBI, the NPCI and the IBA work together towards a database updated in real time to give the correct picture of financial inclusion in India.
Sumita Kale is with the Indicus Centre for Financial Inclusion. Views are personal, and do not represent the stand of this publication.
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