i nc lu s i ve f i nanc e i nd i a re port 2014
56
as BCs. One of the measures taken this year by RBI has
been to allow NBFC-MFIs to act as BCs on behalf of
banks, by-passing concerns about conflict of interest
which had thus far held back their involvement.
5
3.2.2 Corporate versus Individual BCs
Initially, banks asked technology companies or TSPs
to take up the role of BCs and many such companies
started providing end-to-end solutions by acting as the
implementing field agency managing the frontline agents
is hundreds of villages as well.
6
However, they did not
have a sense of agency management and several major
BCs closed down. Also BCs operating in a relatively small
geographical area and with a limited volume of transac-
tions tended to be squeezed out. It became clear that BCs
would have to operate on a large scale to be successful in
this potentially low-margin, high-volume environment. A
matter of great concern was the introduction of the cluster
approach towards financial inclusion, whereby India was
been divided into 20 clusters and a common (corporate)
BC to be appointed for all public sector banks operat-
ing in the large geographical cluster. Tenders for various
states that were awarded through reverse auction resulted
in startlingly low bids. There were genuine apprehensions
that this would result in the entry of entities that did
not have experience of financial services delivery in rural
areas, who given the low bids would be hardly likely to
innovate and provide high quality service to the clients.
The auctions had eventually to be cancelled and the idea
of corporate BC dropped. This brought to the forefront
the unresolved questions of the feasibility of the bank-BC
model which included the viability of the multiple layers
of intermediaries in involved in financial services delivery.
Questions nevertheless remain as to whether the current
crop of BCs had the necessary bandwidth for financial
services delivery. While several major banks had started
with individual BCs and had a negative experience
7
with
their involvement, for many banks the domination of
and reliance upon the TSP providing critical technology
inputs was irksome and the creation of monopolies in
this space very real. The BC agents, managed by the BC
or through a field partner, often found themselves work-
ing on very small commissions considerably lower than
the charges allowed to the BCs by the banks. This further
contributed to their low incomes and high attrition rates.
Ananth and Öncü (2014) studied the role of BCs in
the expansion of banking services in Chittoor, Kurnool
and Mahabubnagar districts of Andhra Pradesh (AP). A
major proposition was that individual BCs could be more
effective than the other types of BC correspondents in
expanding financial inclusion. Their study covered seven
public, one private and two regional rural banks. They
found that with the exception of one bank the remunera-
tion paid to BCs was paltry and often did not cover the
cost of public transportation to make a trip to the bank
to complete transactions.
8
The situation was even worse
in the case of the compensation paid by corporate BCs to
their BC agents who paid much lower compensation than
the banks. They further observe that ‘contrary to what
was hoped, however, corporate BCs have often derailed
banks’ plans to implement financial inclusion. Many
bankers we interviewed expressed exasperation with the
corporate entities, emphasising their ‘lack of control over
the activities of the corporate BCs or BC agents’. This
was found to be the main reason for the ineffectiveness of
corporate BC agents. See also Box 3.2.
B
OX
3.2
Corporate BC Issues
1. Feedback from banks at a round-table organized by
NABARD and Access-Assist in July 2014 included:
(i) corporate BCs hold back a lot of information about
clients from the banks; (ii) corporate BCs do not
give full payment to BCAs which leads to grievances;
(iii) upon merger of RRBs found that corporate BC
performed unsatisfactorily in all RRBs, hence changed
to direct dealing with BCs through ultra small
branches; (iv) bank had to deal with 14 different TSPs
in different regions with different and mismatched
technology, BC work allotted according to L1 crite-
rion resulting in poor performance.
2. One instance reported that the corporate BC agents
in Kurnool district started by using mobiles but due
to operational difficulties, the company promised PoS
machines to them instead—which were not received.
The BC agents who had spent Rs. 20,000, (Rs 10,000
as a deposit and Rs. 10,000 as the cost of a mobile and
printer) financed by a loan with a monthly repayment
of Rs. 620, were unable to transact for a prolonged
period and suffered losses. This also resulted in the
discrediting of the BC model in the eyes of the pro-
spective clients.
9
