Digital Banking Units

• IAS NEXT, Lucknow
• 22, Apr 2022

Reference News:-

Finance Minister Nirmala Sitharaman has reiterated her Budget announcement on setting up 75 digital banking units in 75 districts of the country this year.

• This is to take forward the government’s agenda of digital financial inclusion.

What is digital banking?

Simply put, digital banking involves taking all traditional banking activity online — doing away with paperwork like cheques, pay-in slips, demand drafts and so on. 

What are digital banking units?

A digital banking unit is a specialised fixed point business unit or hub housing certain minimum digital infrastructure for delivering digital banking products and services as well as servicing existing financial products and services digitally in self-service mode at any time. 

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 services that will be provided by these units?

As per the RBI, each DBU must offer certain minimum digital banking products and services. Such products should be on both liabilities and assets side of the balance sheet of the digital banking segment.

• The services include savings bank accounts under various schemes, current accounts, fixed deposits and recurring deposit accounts, digital kit for customers, mobile banking, Internet banking, debit cards, credit cards, and mass transit system cards etc. 

What are the benefits of DBUs?

1. Digital banking units will help banks themselves which are now looking to reduce physical footprint with fewer brick and mortar branches, with a ‘light’ banking approach.
2. The move will open up the rural market for service providers besides providing a boost to credit flow.
3. Such units will also be cheaper to establish than a new branch, and can provide better customer experience aided by technology.
4. The units can also be branded as new-age banks that can help provide personalised finance management tools to new consumers, branded better.
5. Digi banking units also require lesser staff, with cheaper maintenance due to technological tools and hence can be high-yield units for the parent bank.
6. If not anything, more such units can encourage more financial literacy and a favourable outlook towards digital banking – which is the need of the hour.

Significance:

The move will open up the rural market for service providers besides providing a boost to credit flow. 

Need for:

Given the rapid rise of digital banking, digital payments, and FinTech innovation, it was critical to develop digital infrastructure to support digital banking, which has enormous potential. 

RBI Guidelines for DBUs:

• According to the guidelines, permission to open DBUs has been given to scheduled commercial banks (SCB) that have past digital banking experience.
• They can open DBUs in Tier 1 to Tier 6 centres without taking any permission from the Reserve Bank of India (RBI).
• The DBUs that will be opened by the SCBs will be treated as Banking Outlets.
• Each DBU has to be housed distinctly, with separate provisions for exit and entry.
• The guidelines state that the DBUs must be separate from the existing Banking Outlet with proper formats provided that will be appropriate for digital banking users.
• Each DBU must be headed by a senior and experienced executive of the bank who can be designated as the DBU’s Chief Operating Officer (COO).