The Reserve Bank of India (RBI) on 6 October 2016 released the Report of the Internal Working Group (IWG) on Rationalisation of Branch Authorisation Policy. The Group is chaired by Lily Vadera, Chief General Manager, Department of Banking Regulation. The thrust of the recommendations is to facilitate financial inclusion by ensuring availability of banking services in all
centers through low cost delivery channels and mapping the footprints of various banking channels.Recommendations of the IWG
• In the first phase, the recommendations focus on broadening of the current framework to include all banking outlets which are fixed point locations and bring them on par with branches.
• A banking outlet is defined as a fixed point service delivery unit manned by bank’s staff or its Business Correspondent where services of acceptance of deposits, encashment of cheques/cash withdrawal or lending of money are provided for minimum 4 hours per day for at least five days a week.
• Banks need to open banking outlets to meet the 25 percent norms of opening banking outlets in unbanked rural centres that does not have a CBS-enabled banking outlet of a Scheduled Commercial Bank.
• A part-time banking outlet opened in any Centre will be added to the denominator as well as numerator on pro rata basis for computing the compliance with the norm of opening 25% banking outlets.
• A banking outlet opened in North-Eastern States, Sikkim and in Left-Wing Extremism Affected Districts will be treated as a banking outlet/part-time banking outlet in an unbanked rural centre.
• Grandfathering of MFI/NBFC structures of Small Finance Banks to be provided to facilitate an orderly transformation and to minimize the risk of transition. As regards their existing NBFC/MFI branches, banks will be given a time period of 3 years to close or convert these into banking outlets.
• The Boards of the banks should set internal financial inclusion targets and compile the data to monitor the transactions to ensure that target customers for financial inclusion are getting the banking facilities in unbanked rural centres.
• In the second phase, a new data system will be devised which is capable of capturing the locations and transactions carried out by all banking outlets.
Background
The opening of new branches and shifting of existing branches of banks is governed by the provisions of Section 23 of the Banking Regulation Act, 1949.
In the light of the rapid developments in technology and associated digital and telecom revolution, banks are looking at alternative approaches to enlarge their footprints and reach out to the unbanked and underserved centres in remote areas in a cost effective manner.
With a view to facilitate financial inclusion and provide operational flexibility, it was considered necessary to redefine branches and permissible methods of outreach keeping in mind the various attributes of the banks and the types of services that are sought to be provided.
An announcement to this effect was made in the first Bi-monthly Monetary Policy Statement 2016-17 in April 2016 and accordingly an Internal Working group was constituted for the purpose.
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