RBI permitted NBFCs-ND to work as BCs for banks

The Reserve Bank of India (RBI) on 24 June 2014 permitted the non-deposit taking Non-Banking Finance Companies (NBFCs-ND) to act as Business Correspondents (BCs) for commercial banks. This was done with an aim of spread financial inclusion.

NBFCs-ND can be engaged as BCs subject to following conditions
• It should be ensured that there is no comingling of bank funds and those of the NBFC-ND appointed as BC.
• There should 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.
• Banks should 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.

Apart from this, the RBI also did away the rule that made it compulsory for banks to attach each outlet and sub-agent of a BC to a specific branch. Earlier, banks were allowed to assign BC outlets to a branch within 30 km in case of semi-urban and rural areas and five kilometer for metropolitan regions. This action has been taken with an aim to ensure adequate supervision for BCs.

This decision of RBI came following the recommendation of Nachiket Mor Committee on accelerating the flow of credit to those at the bottom of the pyramid and enlargement of catchment area of the Business Correspondents (BCs), including through possible inclusion of new entities as BCs.