Private sector banks are shying away from expanding their business correspondentsâ€™ (BC) network, due to high compliance costs and rising operational expenses.
To be sure, these banks have not shut their BC operations â€” key to driving the financial inclusion agenda â€” but many are going slow on new partnerships, reducing the number of partners and re-evaluating business strategies for the sector
ICICI Bank, Axis Bank and IDFC First Bank have gone slow on their BC operations, said three top bankers in the know of developments.
Others, like Yes Bank and Kotak Mahindra Bank, are re-evaluating how they can make the BC business viable. IDFC First Bank has floated atender to invite corporates to take over its BC business.
ICICI Bank, Axis Bank, IDFC First Bank, Yes Bank and Kotak Mahindra Bank did not respond to ETâ€™s emailed queries till the time of going to press. Multiple bankers spoke off the record, citing regulatory restrictions.
â€œBanks had to suffer big losses last year with an effective 27% tax rate being slapped on them under the revised GST regime,â€ said a senior banker in the know of the matter. â€œMany banks have taken a hit of `30-40 crore last year, as per industry estimates.â€ While revised taxes have been a dampener, compliance costs too have gone up.
The cost of managing a corporate BC network and ensuring complete audit of its activities and systems far outweighs the money banks make out of the business, the banker said. â€œBCs nowadays are mostly engaged in simple transactional services like money remittance, Aadhaar-enabled payments and others; they are not able to open accounts, or even do a full KYC of customers because of regulatory norms. Still, compliance norms continue to be stringent.
Physical verification of a customer is mandatory before opening an account, according to regulations. This has to be done by a bank employee, not a BC, who is a bank agent. Banks like IDFC First are also keen to outsource due to issues around mandatory training of agents and compliance cost of managing agents in-house.
â€œIf compliance is so strong, it is always preferable to have a few large partners, rather than integrating with multiple small entities,â€. â€œWhile this might affect chances of new businesses emerging in this space, it will help us keep costs under check.â€
The government has waived GST for remittances and other services to Jan Dhan accounts, said Anand Bajaj, founder of Nearby Technologies, which works with banks such as Yes Bank.