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Unit 2: Role of Banks in the Development of Economy

been further relaxed to include the letters issued by the Unique Identification Authority of Notes
India containing details of name, address and Aadhaar number.
3. Engaging Business Correspondents (BCs): In January 2006, RBI permitted banks to engage
Business Facilitators (BFs) and BCs as intermediaries for providing financial and banking
services. The BC model allows banks to provide doorstep delivery of services, especially
cash in-cash out transactions, thus addressing the last-mile problem. The list of eligible
individuals and entities that can be engaged as BCs is being widened from time to time.
With effect from September 2010, for-profit companies have also been allowed to be
engaged as BCs. India map of Financial Inclusion by MIX provides more insights on this.

4. Use of technology: Recognizing that technology has the potential to address the issues of
outreach and credit delivery in rural and remote areas in a viable manner, banks have
been advised to make effective use of Information and Communications Technology
(ICT), to provide doorstep banking services through the BC model where the accounts can
be operated by even illiterate customers by using biometrics, thus ensuring the security of
transactions and enhancing confidence in the banking system.
5. Adoption of EBT: Banks have been advised to implement EBT by leveraging ICT-based
banking through BCs to transfer social benefits electronically to the bank account of the
beneficiary and deliver government benefits to the doorstep of the beneficiary, thus
reducing dependence on cash and lowering transaction costs.
6. GCC: With a view to helping the poor and the disadvantaged with access to easy credit,
banks have been asked to consider introduction of a general purpose credit card facility up
to ` 25,000 at their rural and semi-urban branches. The objective of the scheme is to
provide hassle-free credit to banks’ customers based on the assessment of cash flow without
insistence on security, purpose or end use of the credit. This is in the nature of revolving
credit entitling the holder to withdraw up to the limit sanctioned.
7. Simplified branch authorization: To address the issue of uneven spread of bank branches,
in December 2009, domestic scheduled commercial banks were permitted to freely open
branches in tier III to tier VI centres with a population of less than 50,000 under general
permission, subject to reporting. In the north-eastern states and Sikkim, domestic scheduled
commercial banks can now open branches in rural, semi-urban and urban centres without
the need to take permission from RBI in each case, subject to reporting.

8. Opening of branches in unbanked rural centres: To further step up the opening of branches
in rural areas so as to improve banking penetration and financial inclusion rapidly, the
need for the opening of more bricks and mortar branches, besides the use of BCs, was felt.
Accordingly, banks have been mandated in the April monetary policy statement to allocate
at least 25% of the total number of branches to be opened during a year to unbanked rural
centres.
Transition from class banking to mass banking and increased customer focus is drastically
changing the landscape of Indian banking. Expansion of retail banking has a lot of potential as
retail assets are just 22% of the total banking assets and contribution of retail loans to GDP stands
merely at 6% in India vis-à-vis 15% in China and 24% in Thailand. All banks in our survey weigh
Cost effective credit delivery mechanisms (100%) as most important to the promotion of financial
inclusion. This was followed by factors such as identifying needs and developing relevant
financial products (75%), demographic knowledge and strong local relations (62.5%) and ensuring
productive use and adequate returns on credit employed (43.75%) in decreasing levels of
importance. In fact, India has an expanding middle class of 250 to 300 million people in need of
varied banking services. While 60% of our population has access to banks, only 15% of them
have loan accounts and an overwhelming 70% of farmers have no access to formal sources of
credit, reflective of immense potential for the banking system.

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