RBI/2013-14/570
RPCD.FID.BC.No. 96/12.01.011/ 20013-14

April 22, 2014

The Chairman/ Managing Director/
Chief Executive Officer
All Scheduled Commercial Banks

Dear Sir/Madam,

Scaling up of the Business Correspondent (BC) Model –
Issues in Cash Management

Please refer to Para 26 (Part B) of Governor's bi-monthly policy statement dated April 1, 2014 on the above subject.

2. In this connection, we advise that, after opening of large number of banking outlets in the last three years in hitherto unbanked areas of the country through the BC-ICT model, the time has come to monitor the usage in terms of transactions per BC so as to ensure sustainability of the BC model. One of the critical issues identified in this regard has been of Cash Management of BCs.

3. The insistence by banks on BCs to fully prefund their accounts even after considerably long business relationship has become a major impediment in scaling up operations of BCs. Similarly, low/delayed payment of remuneration of BCs and passing on the responsibility of insuring cash to BCs have also been proving to be irritants in increasing the usage in large number of bank accounts opened. It is, therefore, important for banks to recognize that cash handled by BCs, while doing banking business on behalf of the Bank, is Bank's Cash. In view of the above and with a view to scale up the BC model it has been decided that:-

1. The Boards of the Banks must review the operations of BCs at least once every six months with a view to ensuring that requirement of prefunding of Corporate BCs and BC Agents should progressively taper down with the passage of time. Ideally in all normal cases the prefunding should progressively come down in such a manner so as to reach around 15% of the limits fixed for each BC/CSP in case of deposits and 30% in case of Bank Guarantees, etc. in say 2 years from the time a BC starts operations.

2. The Board should also review the position of payment of remuneration of BCs and should also lay down a system of monitoring by the top management of the Bank. The issue of allowing BCs to handle deposit and payment transactions of various credits, remittance, overdraft and other products of banks must also be examined by the Board from time to time. Complaints redressal system in this regard should also be laid down by the Board.

3. As the cash handled by BCs is Bank’s cash, the responsibility for insuring this cash should rest with the banks.

Yours faithfully

(A Udgata)
Principal Chief General Manager