Banks to operate one-man branch in rural areas

EW DELHI: The finance ministry will treat a bank representative offering basic services in villages using a Net-enabled laptop as a branch, widening the reach of the government's financial inclusion plan and doing away with the need to spend on infrastructure.

The ministry directive comes at a time when banks have raised questions about the viability of setting up brick-and-mortar branches in rural areas. At present, only about 5% of India's 6 lakh villages have bank branches. There are 296 under-banked districts in states with below-par banking services. Under the financial inclusion plan, the government aims to provide banking services to 73,000 villages, each having population of 2,000 during the next three months.

"The purpose is to minimise the cost of financial inclusion and see that the cost has a relationship to the growth in business," said a finance ministry official.

The representative, or "business correspondent", will work from this "ultra small branch", which will be of the size of a 100-200-sq-ft room. The correspondent, who will be appointed by the bank, will deal with all cash transactions and other routine work in that area. A bank officer will visit this ultra small branch once a week and connect this business correspondent to the banks' core banking solution (CBS) through a secured network enabling data access and transfer between the small branch and the bank.

"This bank officer will clear applications for new account openings, loans, recovery follow-up and other business development on the spot," the official said.

The finance ministry after discussions with the department of information technology has also issued detailed guidelines on the security of IT infrastructure. "They (the department of information technology) have agreed that it is feasible and have suggested appropriate security mechanisms."

The ministry has also asked banks to revamp their plans for setting up brick-and-mortar branches in rural areas. Banks will now have to come up with a business plan under which the branch would generate profits within a maximum period of two years.

"Banks should also post a branch manager six months in advance so that he can do business development in the area," the official said.

But banks are sceptical about these ultra small branches. "The areas where we are talking about internet connectivity will be few. So it remains to be seen how efficiently they can function," said an executive director of a state-run bank.

Source: EconomicTimes