India’s Digital Banking Unit Is More Direction Than Solution | Techy Kings


Launched with much fanfare and built with the goal of banking for all, the digital banking unit in India is more likely to signal intent and direction, than deliver financial inclusion at scale.

Established in partnership with over 20 public and private sector banks, DBU is essentially a brick and mortar shop equipped with tablets and internet services to help people and small businesses open accounts, transact and access services such as loans and insurance.

Banks that announced the establishment of DBUs include HDFC Bank Ltd., Axis Bank Ltd., ICICI Bank Ltd., Kotak Mahindra Bank Ltd., Canara Bank, Punjab National Bank, Union Bank of India and Jana Small Finance Bank.

“People living in small towns and villages will get benefits like transferring money to get loans. The digital banking unit is another big step in that direction which is happening in the country to make the life of common Indians easier,” Prime Minister Narendra Modi said while launching 75 digital banking units in 75 districts on Oct 16.

The guidelines governing DBU were introduced by the Reserve Bank of India in April this year. The regulation applies to scheduled commercial banks, excluding payments banks, regional rural banks and local area banks, and requires such units to at least offer basic services such as opening savings accounts, fixed deposits and acceptance of identified customers for loans.

Commercial banks with digital banking experience are allowed to open DBUs in Tier 1 to Tier 6 cities, unless specifically barred, without having to take permission from the RBI in every instance.

While the recent launch of DBU is a great initiative in terms of direction and the statement it makes, the unit may not work for all types of customers in India, according to Sumita Kale, advisor at Indicus Foundation.

Rather than bringing unbanked individuals into the banking system, digital banking units are more likely to allow existing bank customers to interact with offerings such as loans and insurance, Kale said.

“On the credit delivery side, for starters, DBU will provide end-to-end digital processing of small-ticket retail and SME loans, starting from online application to disbursement. DBU will also provide services related to certain identified government-sponsored schemes. , RBI Governor Shaktikanta Das said in a statement announcing the launch.

According to RBI’s financial inclusion index, India currently scores 56.4 on a scale of 0 to 100.

While digital payments and banking services have spread rapidly in major urban areas, the spread of digital banking beyond the big cities has also been hampered by access to high-speed internet and limited awareness of the services.

The digital banking unit is a “proof of concept demonstration. It is the culmination point between the branch and a [business correspondent] network,” Anand Kumar Bajaj, chief executive officer at PayNearby—a bank business correspondent firm—told BQ Prime.

Business correspondents work as retail agents engaged by banks to provide banking services at locations other than bank branches/ATMs. For example, a local grocery store can act as a business correspondent for a bank.

While digital banking units can help people access services such as loans, expanding financial inclusion further may require a more detailed understanding of barriers and further strengthening of business correspondent networks, Kale said.

“Business correspondents, or agent networks, really need to spend some more time,” he added, noting that while the finance ministry has looked into it, ensuring agents are trained and there is a process for complaint resolution will be key to bringing more people into the banking fold. digital.


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