For banks, reaching customers in rural areas and emerging markets poses a challenge. Land and set-up costs for traditional bank branches cannot be justified as profit centers. In order to run a bank, you need at least one teller in addition to the bank manager and the masses of mortgage and loan officers on a bank’s rolls, including security as well. This is one of the primary reasons why banks are shutting down their rural branches. Rural customers, on the other hand, spend a large part of their time visiting their respective bank branches. According to data shared by the central bank, on average, a rural customer of the State Bank of India travels at least 8–20 km to the nearest branch. This is not the only cost because the customer may also have to incur a travel or commute cost to these bank branches.

In such a situation, agency banking or business correspondents (BCs), a network of banking agents operating as a physical bank branch, is the answer. The BCs can be telcos, eWallet providers, retailers, and the likes. It is convenient for the same SBI customer where the telco agent is less than 2 km away. After offering very basic banking services like payments, account opening, and balance updates for years, business correspondents who run these agency banking networks in small towns and villages are getting into credit and insurance. “Large public sector banks have already enabled us to source loans, and we are doing some collections for these banks too,” said Ketan Doshi, managing director, PayPoint India.

Data disclosed by the Business Correspondents Resource Council, a body in the sector where studies are conducted, indicate there are 1.8 million BC outlets operating in Indian villages. Fresh services have been appended to the list of products offered to BC agents, some of which include credit and insurance. The committee was created under the chairmanship of CS Shetty, the managing director of the State Bank of India. While numerous sizable BCs were rendering various services through their kiosks, banks now aim to provide training to all kiosk owners to elevate them to a position where they can manage these extra services.

Sunil Kulkarni, the chief executive of the Business Correspondents Federation of India, a body representing BC agents, mentioned, “The appearance of digital public structures like Aadhaar and Account Aggregator has empowered banks to broaden the range of product offerings with digital services at rural kiosks, ultimately leading to greater earnings for the industry.” This is aligned with the 'Digital India' narrative, where kiosks can proffer aided digital services to consumers in rural regions lacking bank branches. The network proved useful during the Jan Dhan scheme for account opening for every Indian and again during COVID for direct benefit transfer to the last-mile Indians. Currently, the objective is to utilize this channel for distributing more intricate financial products.

The agency banking outlets are engaged in generating leads for tractor loans, housing loans, and even vehicle loans. While the loan is disbursed from the bank following all necessary checks, the agent network receives a commission as a sourcing channel. Beyond disbursals, this channel is also utilized for collecting EMI payments. “The RBI has ordered a training initiative for this type of job. We aid our agents in getting trained in these programs and engaging in this task,” shared Doshi from PayPoint. Additionally, FIA Tech is procuring credit for their banking associates. At present, the ticket size of these loans is approximately Rs 5 lakh, as stated by Prem.

BCs are also marketing insurance products, and several government insurance schemes are principally sold through this network. More than just fundamental account opening and payments, BC agents are actively involved in vending these products, according to insiders in the industry. “Simple life insurance, general insurance products, and even mutual fund investment schemes can be accessed via the BC channel,” commented Dharanidhar Tripathy, the chief executive of BCRC.

Agency banking was devised to bring door-to-door banking to rural India and later on, became a significant avenue for domestic remittances when the central bank permitted interoperability across this network. Currently, it is broadening its function to the subsequent level, streamlining the banking process in India, and is well-positioned for further growth in the forthcoming years.