Digital Banking Units (DBU)
Context: Finance Minister has reiterated her Budget announcement on setting up 75 digital banking units in 75 districts of the country this year.
What was the announcement?
- In the Budget for 2022-23, the Finance Minister had noted that in recent years, digital banking, digital payments and fintech innovations have grown at a rapid pace in the country.
- As result, government is continuously encouraging these sectors to ensure that the benefits of digital banking reach every nook and corner of the country in a consumer-friendly manner.
- Taking forward this agenda, and to mark 75 years of our independence, government proposed to set up 75 Digital Banking Units (DBUs) in 75 districts of the country by Scheduled Commercial Banks.
What are these DBUs?
- DBU is a specialised fixed point business unit housing a certain minimum digital infrastructure for delivering digital banking products and services.
- It will be a fixed business unit operating under the retail banking division of the bank and will deliver new digital products and services and service existing financial products digitally, in a cost-effective, efficient, paperless and secure manner with 24X7 availability in both self-service and assisted mode.
Who will set up these DBUs?
- Commercial banks (other than regional rural banks, payment banks and local area banks) with past digital banking experience are permitted to open DBUs in tier 1 to tier 6 centres, unless otherwise specifically restricted, without having the need to take permission from the RBI in each case.
What are the minimum Products and Services to be offered by DBUs?
- Liability Products and services: (i) Account Opening: Saving Bank account under various schemes, Current account, Fixed deposit and Recurring deposit account; (ii) Digital Kit for customers: Mobile Banking, Internet Banking, Debit Card, Credit card and mass transit system cards; (iii) Digital Kit for Merchants: UPI QR code, BHIM Aadhaar, POS, etc.
- Asset Products and services: (i) Making applications for and onboarding of customer for identified retail, MSME or schematic loans. This may also include end to end digital processing of such loans, starting from online application to disbursal; (ii) Identified Government sponsored schemes which are covered under the National Portal.
- Digital Services: (i) Cash withdrawal and Cash Deposit only through ATM and Cash Deposit Machines respectively; (ii) Passbook printing / Statement Generation; (iii) Internet Banking Kiosk which may also include facilities like Cheque Book request, receipt and online processing of various standing instructions of clients;(iv) transfer of funds (NEFT/IMPS support); (v)Digital onboarding of customers for schemes such as Atal Pension Yojana (APY); Insurance onboarding for Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY). Etc.
What are the other key guidelines by RBI on DBUs?
- Digital Banking Customer Education: In addition to onboarding of customers in a fully digital environment, various tools and methods shall be used by DBUs to offer hands-on customer education on safe digital banking products and practices for inducing customers to self-service digital banking.
- Customer Grievances: There should be adequate digital mechanism to offer real time assistance and redress customer grievances arising from business and services offered by the DBUs directly or through Business Facilitators / Correspondents.
- Reporting Requirements: Performance update with respect to DBU shall be furnished in a RBI pre-defined reporting format. Banks shall furnish information relating to opening, closure, merger or shifting of DBUs to RBI.
- Cyber Security: In addition to ensuring physical security of the infrastructure of the DBU, adequate safeguards for cyber security of the DBUs will have to be ensured by the banks
What are the benefits of DBUs?
- Digital India: It will prompt the banks, including the traditional ones to adopt a Digital Strategy and thereby moving a step closer in realising the objectives of Digital India mission.
- Cost Effective Banking: DBUs will help banks themselves which are now looking to reduce physical footprint with fewer brick & mortar branches, with a ‘light’ banking approach.
- Increases Rural Penetration: The move will open up rural market for service providers besides providing a boost to credit flow.
- Personalised products for new age customers: The units can also be branded as new-age banks than can help provide personalised finance management tools to new customers.
- Financial Literacy: More such units will encourage more financial literacy and a favourable outlook towards digital banking – which is the need of the hour.
- Fosters Innovation: This will also prompt the launch of new products or services or transition of the existing ones to become holistically digitized, particularly for the Retail and SME segments, fostering innovation.
- Better Consumer Experience: Such units will be cheaper to establish than a new branch and can provide better customer experience aided by technology.
How will these DBUs compete with fintechs?
- Currently, fintechs operating as neobanks offer digital banking services but they do so in partnership with non-banking financial companies (NBFCs). Some of the neobanks offering services in India are Jupiter, Fi Money, Niyo, Razorpay X.
- Compared to conventional banks with online and mobile banking facilities, neobanks or digital banks excel at product innovation and offer far better digital solutions.
- However, given the arrangement they have currently with NBFCs or scheduled banks to conduct the actual banking part, some have pegged these digital banks as “glorified digital distribution companies”.
Connecting the dots;