In today’s Finshots, we discuss how Digital Banking Units (DBUs) can up India’s financial inclusion game.
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Have you ever wondered why we have ATMs, cash deposit machines and passbook printing kiosks? Yes, they make your life easier. But they also help productivity in banking institutions. No long queues, limited waiting periods and you can eliminate unnecessary human intervention.
But there is a problem. All of them perform important functions, but they are not always everywhere. Sure, you will find ATMs scattered in most parts of the country. But Cash Deposit Machines? And the passbook kiosk? The ones you rarely see. And you rarely see all three together. It’s like finding unicorns in the wild.
Rarely! Very rare!!!
And that means you have to visit the nearest physical branch to get the full banking experience. You may also need a bank representative to assist you. And you may have to spend several hours in the process. It’s inconvenient.
Now, the Indian government wants to change that. A few days ago, it announced the launch of 75 Digital Banking Units (DBU).
What is DBU?
Well, it’s just like a real bank branch, but without all the overhead. It will offer traditional banking services — including cash withdrawals, deposits, passbook printing, statement generation and fixed or recurring deposits. It may offer more complex services — loan applications and the ability to open savings or current accounts.
But this DBU is mostly digital and it will be open 24×7. So if you want to live on the edge and open a savings account at 12am, that’s probably doable.
Also, scheduled banks (excluding regional rural banks, payments banks and local area banks) with some digital banking experience can set up DBUs across the country — from tier 1 to tier 6 areas. Without any permission from RBI.
And if all goes well, DBU can significantly improve the quality of banking services in the country. Especially in public sector banks.
How is that, you ask?
Okay, so in 2019, some professors from Kerala conducted a study on ‘Work Stress and Employee Engagement in State Bank of India (SBI)’. Now it will not surprise you that there is huge work pressure in SBI. Despite all the jokes we often hear, it is not a pleasant experience, especially for employees. And as work pressure increases, employee output decreases drastically. This inevitably translates into a poor customer experience.
Now here’s the thing. According to unofficial data from the published annual report (2020), SBI has 19,000 customers per branch and only 1 employee to serve about 1680 customers. Compare that to HDFC Bank which has 10,000 customers per branch and 1 employee for every 467 customers and you can see why the quality of service may vary across these two banks.
So, if DBU fails, this could be a boon to public sector banks. It can help them focus on what really matters and then hand off more mundane jobs to these semi-digital entities.
But this is the most important thing about DBU. It is not merely intended to reduce steps or reduce the stress of employees in the bank. They may have a bigger role to play. They can help aid financial inclusion.
You see, there are only 14 bank branches per 100,000 people in India compared to the UK and US which have more than 25 branches per 100,000 people. And while it may not be easy to set up branches in every nook and cranny of the country, smaller DBUs could be the way forward to reach the unbanked.
But financial inclusion is not just about providing infrastructure. It is about the extent to which people can use banking services as well.
To put things in perspective, let’s look at RBI’s financial inclusion index or the so-called FI index.
In FY21, the FI Index value was 53.9. For context, if the inch index is closer to 100, this indicates complete financial inclusion. And anything close to 0 means full financial exclusion. Now to arrive at this single figure, RBI takes into account 97 indicators across 3 key metrics — access, utilization and quality. And that’s where things get interesting.
The number obtained for the “Access” sub-index increased from 61.7 to 73.3 between 2017 and 2021. This means that the available financial infrastructure became more accessible to Indians during this period. But unfortunately, the other two sub-indices lowered the final FI index. In 2021, we only got 43 for Use. Thus, despite making infrastructure more accessible, the RBI notes that people are not using it enough. And on the other Quality sub-index (which measures literacy etc) we only got 50.7.
That’s what we need to fix.
So how will DBU solve Quality and Usage, you wonder?
Here’s something we didn’t tell you at first. Remember how we stated that DBU will be ‘mostly digital’? In fact, each DBU will have a Self-Service Zone and a Digital Help Zone. This means, there will be at least 2 bank staff who will man the booth to help people when they need it. So it is actually a ‘physical’ unit. You know — physical + digital.
But whatever we want to call it, let’s hope that DBU succeeds in their ultimate goal — improving financial literacy and inclusion in the country.
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