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LATEST NEWS UPDATES | RBI, finance ministry differ over rural bank branches-Sangita Mehta

RBI, finance ministry differ over rural bank branches-Sangita Mehta

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published Published on May 25, 2012   modified Modified on May 25, 2012

The Reserve Bank of India, RBI, and the finance ministry seem to have differences on the way banks should go about ensuring financial inclusion. While both the regulator and the ministry are passionate about providing banking services at low cost to the disadvantaged, a difference of opinion between the two has confused bankers. 

Recently, the finance ministry told banks that every business correspondent outlet should be converted into an ultra-small branch. So far, business correspondents - agents appointed by banks to provide banking services to the financially excluded in rural India - reached out to individuals on their own and operated from home. 

On the other hand, the RBI, in a recent circular, told banks to set up an ultra-small branch for 8-10 business correspondents operating in an area. 

While PSU banks will make significant savings by following the RBI's diktat, they cannot completely ignore the finance ministry's directive. 

Bankers to Seek Clarity 

State-run banks cannot ignore the finance ministry's instructions since the government holds majority stake in these lenders. Senior bankers from public sector banks are expected to raise the issue with Finance Secretary DK Mittal at a meeting in Dehradun on Friday. 

Mittal has called the meeting to review the progress made by banks on financial inclusion. Yet another grey area is the deputation of bank officers to these branches. 

The finance ministry has indicated that bank officers should visit ultra-small branches once a week to review the status. However, the Reserve Bank of India insists that banks must depute a fulltime officer at these branches. "Since the finance ministry has set a deadline of May 31 to complete the exercise of creating an ultra-small branch for each business correspondent, we would require a quick clarification on this," said a senior bank official on condition of anonymity. 

Banks have appointed more than 1 lakh business correspondents covering over 70,000 villages. "We are also considering to take this issue to our board since it has representatives from both the Reserve Bank and the finance ministry. Let the board members deliberate on the matter," said the bank official.

The Economic Times, 25 May, 2012, http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/rbi-finance-ministry-differ-over-rural-bank-branches/articleshow/13459631.cms


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