With a commission of Rs 15, RBI’s Business Correspondents model might be failing Government's financial inclusion plans

 By :

Grima Bora 

ET

India has around 89.5 crore people living in rural areas. The number of ATMs? 5%. According to an RBI data, BY Garima Bora English Edition | E-Paper Tariq / out of 6 lakh villages in India, less than 30,000 villages have ATMs. To ensure nancial inclusion to the last-mile consumers bereft of digital payments or even ATMs at the least, the Reserve Bank of India came up with the Business Correspondents (BC) model in 2006. BCs are retail agents deployed by banks for providing banking services at locations which do not have a bank branch/ATM. These agents can perform various nancial services such as identication of borrowers, collection of money, and preliminary processing of loan applications. However, the grass is still not greener on the rural side. Nearly 10 lakh BCs work in rural and urban underbanked areas on a commission-based model where they get 0.5% of the transaction amount or Rs 15, whichever is lower by the bank on Direct Benet Transfers (DBT). Anand Kumar Bajaj, CEO, PayNearby and Vice Chairman of the Business Correspondent Federation of India (BCFI), strongly believes that the current BC model is unviable and is lled with policy dilemmas. “Imagine what a BC agent gets for dispensing Rs 500? Rs 2. Whereas if he sells soaps, oil and grains, he gets Rs 40 minimum with an 8% margin on that. So when we say that for BC viability, at least a 1% fee should be given, why are we running short and shy of it? That the chief economic adviser has been talking about how Rs 1.28 lakh crore remains untouched in DBT accounts, doesn't it tell us if we cannot install Rs 70,000 per month costing ATM in rural areas, we can at least give a little more to the BC agent for his job? If not MDR, at least he will earn a meaningful revenue,” he said, speaking at the virtual Sankalp Global Summit 2020. Apart from this, banking services in rural populations are often met with failures and at the receiving end of customers’ ire is the BC agent. Banking ombudsman sits far away in metropolitan areas, making the redressal system nearly inaccessible. In such cases, all the customer can do is blame the BC agents, who in turn, has no one to complain. Bajaj says there is a dire  Share need of a viable model with the right technology infrastructure for these issues. ATMs to dispense cash are mainly available in urban India. Enter GST Things started getting complicated after the introduction of the Goods and Services regime. According to the rules, BC agents cannot directly collect fees from customers for the services rendered. Accordingly, banks levy a service charge (1.5% inclusive of all applicable taxes) from customers for the facilities provided through BC agents. When paying GST on the service charge, banks deducted the amount paid to the BC agents and paid the tax on the remaining amount. GST authorities, however, in 2019 ruled that banks have to pay GST on the entire amount of service charge, which includes the amount paid to BC agents. Subsequently, banks started passing on the additional tax expenses to BC agents. While GST on nancial services is at 18%, such rulings are pushing the cumulative burden of GST to about 27% on BC services. The Government has exempted BC services in rural areas from GST if we can identify the account holder as living in such areas. This has resulted in another problem, “BC services have been exempted from GST if they provide the services in rural areas. But look at the vagaries of advancement of technology, the National Payments Corporation of India (NPCI) has written to / the GST authorities that it cannot be identied whether the account is rural or urban with core banking and a single IFSC code. It is no longer a separate IFSC code of UP or Bihar that I can know whether the account is rural or urban. So banks unfortunately pass this cost to the BCs,” Bajaj said. In most villages, local retail shops double up to carry out BC activities. The costs are not limited to GST alone. While under the Income Tax BCs are exempt from TDS on cash withdrawal, most banks interpret the law very dierently. 10% TDS is levied on cash withdrawals and an additional 2% if withdrawals are more than Rs 1 crore. Many BCs in far-ung rural areas rarely know how to claim a refund. “We are not in a Shakespearean English regulation framework where the denition of every law needs to be explained. The intent is clear, no one wants to listen to people who don’t tweet,” Bajaj said. More to give Agreeing with Bajaj’s thoughts, Vijay Pratap Singh Aditya, co-founder of Ekgaon Technologies and Founder Member & Board of Director of BCFI, believes that banks have limited the services of BCs who need to sell more services to get better income and commission. According to RBI guidelines, in the scope of activities for BC agents various services are included, such as / creating awareness about savings and other products and sale of micro insurance/ mutual fund products/ pension products/ other third-party products. However, they are still allowed to oer only a few services, majority of which are deposit withdrawals and opening a bank account. Far-ung rural areas are dependent on BC agents for banking activities. Aditya says when the model was introduced in 2006, opening a bank account was the most sought service by the rural population, but now almost everyone has a bank account. “So the number of bank account openings has reduced, and therefore the revenue or commissions earned by BCs have also gone down. The other service is to withdraw money. Now, to withdraw money, you need to have money in the bank account. In pre-Corona times, migrants used to send money from cities where they worked. But they are not sending money anymore. So that migrant remittance has reduced by almost 80%. When there is no money in the account, what will you draw? When you don't withdraw the money, the viability of the BC model becomes questionable,” he told ET Digital. Elaborating his solution, Aditya said BCs could help the rural population with various other services provided by the banks such as making a recurring account, popularly known as chit fund scheme, and helping rural communities in loan repayment / 2 hours ago 1 COMMENTS ON THIS STORY Ram Nath open atm in rural area powered by solar panes VIEW COMMENTS ADD COMMENTS processes. He mentioned that almost every rural household in the country is indebted by Rs 8-10 lakh and are unable to pay back. “Bankers need to allow BC points to work with the local community and guide them, help them repay the loans in installments or create a moratorium system. Banks do it all the time for the corporate sector, so why can't they do it for the rural sector. Similarly, we have a savings account, a recurring account, mutual funds account, xed deposit account, etc.,. All these should be made available through BC points as well. In fact, a recurring account is the best account for rural women who save a bit of money frequently. The money is always kept in the house, why can’t it come in the bank account. However, banks don’t allow recurring deposits within the corporate interests,” he said, adding that these are two services where a good sum can be earned by BCs.

Source: https://economictimes.indiatimes.com/small-biz/money/with-a-commission-of-rs-15-rbis-business-correspondents-model-might-be-failing-governments-financial-inclusion-plans/articleshow/79402278.cms?utm_source=newsletter&utm_medium=email&utm_campaign=NewsDigest&utm_content=Small%20Biz&utm_term=1&ncode=7b57c34b23c590b0660c7e828b59698d30890d3f25a5941047a2f8267b7c96e5589123e5dff2e7c6c56c853c9158349a032a651461b602cacec22b76c37f30c74f686bffe8fd95edcbe2feef474e7157