Business Correspondents and Payment Banks

Many bank officials are of the view that Business Correspondents or BC  channel is a loss making proposition for banks. But I could not validate the assessment as the BC channel is currently engaged primarily to collect deposits and do small value transactions and the channel is not being engaged to do the core banking activity of lending. However the deposits mobilized by BCs can be used by banks for lending or doing other investment activities. Therefore BCs can’t be held accountable for utilization of deposits by banks.

Like the BC channel, Payment Bank is another project by the Government of India to promote financial inclusion. Eleven entities got payment bank licenses, three of them have already opted out and three have just started working. Since the very beginning experts have been skeptical about the viability of Payment bank business model.Like BCs, payment banks can collect limited deposits, do transactions but can’t lend.

Without a sustainable business model, Payment Bank is not likely to become a success story. Government may perhaps look at expanding the scope of activities of Payment Bank and bring in priority sector lending and micro finance under it.

As per emerging trends we observe that the payment banks that have started operations are converting their wallet/app businesses into payment banking which means it would essentially become an urban business and financial inclusion would take a backseat.

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