RBI revises definition of what constitutes a bank branch
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Mumbai: The Reserve Bank of India (RBI) on Thursday relaxed the branch authorization policy, bringing all branches and fixed business correspondent outlets under the definition of banking outlets and removing restrictions on opening branches in Tier 1 centres.
According to the revised policy, RBI has defined “a banking outlet” for a scheduled commercial, a payments bank or a small finance bank as a fixed point service delivery unit, manned by either the 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 a minimum of 4 hours per day for at least five days a week”. Those outlets which do not meet this criteria will be called “part-time banking outlet.”
While the policy has removed restrictions on opening banking outlets in Tier 1 to Tier 6 centres without taking RBI’s permission in each case, the regulator has mandated that banks open 25% of these outlets in unbanked rural centres (URC). Under the revised policy, a URC is defined as a “rural (Tier 5 and 6) centre that does not have a core banking system (CBS)-enabled ‘banking outlet’ of a scheduled commercial bank, a small finance bank, a payment bank or a regional rural bank nor a branch of local area bank or licensed co-operative bank for carrying out customer based banking transactions”.
With the expansion in definition of a branch, RBI has allowed all extension counters, satellite offices, part-shifted branches, ultra small branches and specialized branches, to be treated as ‘banking outlets’ or ‘part-time banking outlets’. However, ATMs, E-lobbies, bunch note acceptor machines ,cash deposit machines, e- kiosks and mobile branches will fall outside the purview of “banking outlets”. This is a shift from the earlier definition of a “branch” which also included off-site ATMs.
The proposal to rationalise the branch authorization policy was introduced under former RBI governor Raghuram Rajan in the April 2016 monetary policy. “With a view to facilitating financial inclusion and providing flexibility on the choice of delivery channel, it is proposed 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,” RBI had said in the policy statement.
Later an internal working group was set up, which came out with the draft report in October 2016. The key focus of the recommendations was to facilitate financial inclusion by ensuring availability of banking services in all centers through low-cost delivery channels.
The revised policy has also allowed small finance banks three years from the date of commencement of business to align their banking network with the extant guidelines. Till such time, the existing structures may continue and would be treated as “banking outlets” though not immediately reckoning for the 25% norm. “Nevertheless, during this period of three years, for all the banking outlets opened or converted from the existing MFI branches in a year, they will have to open 25% banking outlets in unbanked rural centres in the same year,” RBI said.
“This policy will help in further penetration in rural areas and increase the profitability of the organization. We expect 10-15% more growth in the business with same set of branches we have projected,” said Munish Jain, chief operating officer of Capital Small Finance Bank.