India’s retirement fund manager has asked banks to treat banking correspondents (BCs) as their employees and extend all benefits due to them, three people familiar with the matter said, a move that could hurt lenders.
BCs are individuals authorized by banks to act as their representatives in places where they are not physically present. The central analysis and intelligence unit of the Employees Provident Fund Organisation, EPFO, in February wrote to banks and corporate BCs in this respect.
“The central government is serious about increasing the social security net for all kinds of workers,” said a senior EPFO official, seeking anonymity. “If construction workers can be brought under provident fund benefit, why can’t BCs of banks?”
Typically, banks follow a three-tier structure with banks at the apex level, corporate BCs as intermediary, and individual agents providing service to customers at the third level. In some cases, banks engage with agents directly.
This model enables a bank to expand reach and offer banking services at a low cost, as setting up a physical branch may not be viable in all cases.
According to latest data with the Banking Correspondent Federation of India (BCFI), there are 70 corporate BCs and 285,000 individual agents working for banks.
BCFI is an association representing all banking correspondents.
Bringing individual BCs under the ambit of the Employees‟ Provident Funds and Miscellaneous Provisions Act, 1952, will make them eligible for benefits including minimum wage, gratuity, bonus and leave entitlements, besides provident fund.
“Currently, BCs get paid a minimum remuneration of Rs5,000 in addition to a commission amount which is dependent on the number of transactions,” said Anand Shrivastav, chairman, Banking Correspondent Federation of India.
“With BCs coming under EPFO, a minimum wage will be fixed as per the Minimum Wages Act for skilled workers at Rs12,000. Other additional benefits including PF will be over and above this,” Shrivastav said.
The Indian Banks Association (IBA) and BCFI have since written to the Prime Minister’s Office, labour ministry, finance ministry and the Reserve Bank of India, arguing why this move will make the banking correspondents model an unviable business.
“EPF & MP Act 1952 is not applicable to BCs as well as corporate BCs as they are independent entrepreneurs with an agreement to operate BC services,” BCFI wrote to the Prime Minister on 31 March.
“Bringing BCs under the ambit of EPFO will, inter alia, make them as de jure employees of banks/corporate BCs and raise other problems for the banks/corporate BCs and government as well,” the BCFI letter noted.
The content of the IBA letter, according to an IBA official who did not want to be named, was similar.
The Reserve Bank of (RBI) India too has written to the labour ministry to exempt BCs appointed by banks from provident fund coverage, said one of the three people cited earlier.
In January 2006, RBI permitted banks to engage BCs as intermediaries for providing financial and banking services. Initially, only individuals were allowed to act as BCs, which was later expanded to include for-profit companies to provide door-step delivery of services.
Currently, 126,000 of the total 285,000 BCs are engaged only for activities under the Pradhan Mantri Jan Dhan Yojana (PMJDY) programme. According to recent Pradhan Mantri Jan-Dhan Yojana (PMJDY) data, public sector banks engage nearly 79,826 active BCs for opening accounts, cash withdrawal through Rupay cards and Aadhaar authentication, while regional rural banks engage 29,807 BCs. Private sector banks engage only 2987 BCs.
Any change in regulation to bring BCs under EPFO will therefore severely affect the profitability of government-owned banks, the person mentioned above argued. Viability of the BC model has also been a challenge due to the high transaction cost for banks and customers. According to the BCFI report, BCs receive only 0.5% of the transaction value for providing services under PMJDY, where as banks receive 1%.