1. Scope of Application
These guidelines are applicable to all Domestic Scheduled Commercial Banks (excluding Regional Rural Banks), Small Finance Banks, Payment Banks and Local Area Banks.
2. Date of Application
These guidelines will come into effect from the date of issue of the Circular.
The following definitions are to be used for the purpose of this policy framework:
3.1 Banking Outlet/Part-time Banking Outlet
3.1.1 A ‘Banking Outlet’ for a Domestic Scheduled Commercial Bank (DSCB), a Small Finance Bank (SFB) and a Payment Bank (PB) is a fixed point service delivery unit, manned by either bank’s staff or its Business Correspondent where services of acceptance of deposits, encashment of cheques/ cash withdrawal or lending of money are provided for a minimum of 4 hours per day for at least five days a week. It carries uniform signage with name of the bank and authorisation from it, contact details of the controlling authorities and complaint escalation mechanism. The bank should have a regular off-site and on-site monitoring of the ‘Banking Outlet’ to ensure proper supervision, ‘uninterrupted service’ except temporary interruptions due to telecom connectivity, etc. and timely addressing of customer grievances. The working hours/days need to be displayed prominently.
3.1.2 A banking outlet which does not provide delivery of service for a minimum of 4 hours per day and for at least 5 days a week will be considered a ‘Part-time Banking Outlet’.
3.2 Unbanked Rural Centre
An ‘Unbanked Rural Centre’ (URC) is a rural (Tier 5 and 6) centre that does not have a CBS-enabled ‘Banking Outlet’ of a Scheduled Commercial Bank, a Small Finance Bank, a Payment Bank or a Regional Rural Bank nor a branch of Local Area Bank or licensed Co-operative Bank for carrying out customer based banking transactions.
N.B.1: Extension Counters, Satellite Offices, Part-shifted Branches, Ultra Small Branches and Specialised Branches, subject to their satisfying the definition given above, shall be treated as independent ‘Banking Outlets’ or ‘Part-time Banking Outlets’, as the case may be.
N.B.2: ATMs, E- lobbies, Bunch Note Acceptor Machines (BNAM), Cash Deposit Machines (CDM), E- Kiosks and Mobile Branches will not be treated as ‘Banking Outlets’. Point of Sale (PoS) terminals where limited cash withdrawal facility is allowed by banks in terms of extant instructions without having an arrangement with the concerned entities as ‘business correspondents’ will not be considered as ‘Banking Outlets’.
4. Opening of Banking Outlets – General Permission
4.1 Domestic scheduled commercial banks (other than RRBs) are permitted to open, unless otherwise specifically restricted, Banking Outlets in Tier 1 to Tier 6 centres without having the need to take permission from Reserve Bank of India in each case. The policy covers the opening of ‘Banking Outlets’ in all Tiers as defined on the basis of population as per Census 2011. The tier-wise and population group-wise classification of centres is provided in Annex I.
4.2 The opening of ‘Banking Outlets’ during a financial year will be subject to the conditions given below:
a) At least 25 percent of the total number of ‘Banking Outlets’ opened during a financial year should be opened in unbanked rural centres, as defined in Para 3.2 above.
b) A ‘Part-time Banking Outlet’, opened in any Centre, will be counted and added to the denominator as well as numerator on pro rata basis for computing the requirement as well as the compliance with the norm of opening 25 per cent Banking Outlets in unbanked rural centres. Some illustrations on the computation of part-time banking outlet have been given in Annex II.
c) A ‘Banking Outlet’/‘Part-time Banking Outlet’ opened in any Tier 3 to Tier 6 centre of North-Eastern States and Sikkim as well as in any Tier 3 to 6 centre of Left-wing Extremism (LWE) affected districts as notified by the Government of India from time to time, will be considered as equivalent to opening a ‘Banking Outlet’/ ‘Part-time Banking Outlet’, as the case may be, in a URC. A list of 106 LWE affected districts in 10 States as notified by the Government as on February 24, 2016 is being provided in Annex III. As the overall objective of these guidelines is enabling expansion of banking facilities in these underbanked/underserved centres, each banking outlet opened, irrespective of the banked/unbanked status of the Centre, will be reckoned as having been opened in a URC.
d) A full-fledged ‘brick and mortar’ branch opened in a rural (Tier 5 and 6) centre which is already being served by a fixed point BC outlet by any bank will also be eligible to be treated as equivalent to opening a ‘Banking Outlet’ in a URC. In other words, the first fixed point BC outlet of a bank as well as the first ‘brick and mortar’ branch of any bank opened in a URC will be reckoned for computing compliance with the 25 per cent norm.
e) A ‘banking outlet’ opened in a rural (Tier 5 and 6) centre which is served by only a banking outlet of a Payment Bank will also be eligible to be treated as equivalent to opening a ‘banking outlet’ in a URC. In other words, the first ‘banking outlet’ by a Payment Bank as well as the first ‘banking outlet’ by any other bank opened in a URC will be reckoned for computing compliance with the 25 per cent norm.
f) The time given to a bank for opening an outlet in a URC is one year. If a bank fails to adhere to the requirement of opening 25% banking outlets in a year, appropriate penal measures, including restrictions on opening of Tier 1 branches, may be imposed.
4.3 To encourage the banks to open/frontload more number of banking outlets in unbanked rural centres, they will be allowed to carry forward the benefit of the ‘Banking Outlets’, if any, opened in excess of the requirement specified in para 4.2 above, for a period of next 2 years. No extension to avail the benefit will be allowed.
4.4. To enable banks to have information for identifying a URC, State Level Banker Committees (SLBCs) shall play a constructive and proactive role. The SLBCs shall compile and have an updated list of all unbanked rural centres in the State which shall be displayed on their website. This list will facilitate banks to choose/indicate the place where they wish to open a ‘banking outlet.’ Banks shall inform and coordinate with the SLBC Convenor bank to earmark the centre identified by them. If a bank fails to open the banking outlet in the prescribed period of 1 year as per Para 4.2 (f) above, the SLBC convenor bank may indicate the Centre as available for other banks to open a banking outlet. The non-member banks of the SLBC, may also refer to the website and keep the SLBC Convenor banks informed of the centres identified by them.
4.5 If a bank proposes to undertake government business at any of the banking outlets/part-time banking outlets, it would require prior approval of the Government authority concerned as also of Department of Government and Bank Accounts, Reserve Bank of India, Central Office.
5. Merger/Closure/ Shifting/Conversion of ‘Banking Outlets’
5.1 Banks having general permission may shift, merge or close all ‘Banking Outlets’ (except rural outlets and sole semi-urban outlets) at their discretion.
5.2 Merger, Closure and shifting of any rural ‘Banking Outlet’ as well as a sole semi urban ‘Banking Outlet’ would require approval of the DCC/DLRC. However, conversion of any rural or sole semi-urban banking outlet into a full-fledged brick and mortar branch and vice versa would not require such approval. While merging/closing/shifting/converting a rural or a sole semi urban ‘Banking Outlet’, banks and DCC/DLRC shall ensure that the banking needs of the centre continue to be met.
5.3 Banks should also ensure that customers of the Banking Outlet, which is being merged/closed/shifted are informed well in time so as to avoid inconvenience to them. Further, banks should ensure that they continue to fulfill the role entrusted to these ‘Banking Outlets’ under the Government sponsored programmes and Direct Benefit Transfer Schemes.
5.4 It may further be ensured that ‘Banking Outlets’ are shifted within the same or to a lesser population category, i.e., semi urban ‘Banking Outlets’ to semi urban or rural centres and rural ‘Banking Outlets’ to other rural centres.
6. Opening/shifting/merger/closing/conversion of Banking Outlets – Guidelines for Banks which do not have General Permission
6.1 Domestic Scheduled Commercial Banks from whom general permission has been withdrawn, shall obtain prior approval of Department of Banking Regulation (DBR), Central Office, RBI for opening all their branches. Further, in respect of their fixed point BC outlets, they shall also approach Reserve Bank for permission except for outlets opened in Tier 5 and 6 Centres. Small Finance Banks, Payment Banks as well as Local Area Banks (LABs) shall obtain prior approval of DBR, Central Office, RBI for all categories of banking outlets. These banks shall submit their Annual Banking Outlet Expansion Plan (ABOEP) with the consolidated details of proposals for opening, closing, shifting, merger and conversion of these banking outlets as per Proforma given in Annex IV.
6.2 It should be ensured that all the proposals conform to the guidelines contained in the above paras applicable to banks having general permission. On approval of the consolidated proposal, individual proposals for opening new branches at specific centres, for which prior permission is required from RBI, must be submitted in the prescribed Form VI in terms of Rule 12 of the Banking Regulation (Companies Rules), 1949, to the DBR, Reserve Bank of India, Central Office, Mumbai for approval. The Proforma is given at Annex V. The ABOEP and any other proposals required to be submitted to RBI in this regard should have the approval of the Board of Directors of the bank or such other authority to which powers have been delegated by the Board of the bank. Banks shall ensure that an authenticated / certified copy of such approval is invariably submitted along with these proposals.
6.3 It is recognized that some banks, including Small Finance Banks, not having general permission would have taken specific approval of Reserve Bank for their Annual Branch Expansion Plan for the current year (2017-18) including approval for opening of 25% branches in URCs, identified as per the erstwhile definition of a URC. It is clarified that notwithstanding the revised definition of a URC, as per Para 3.2 above, branches opened at the centres authorized by the RBI will be reckoned for assessing compliance with the 25% norm.
7. Grandfathering of MFI Structure of the Small Finance Banks
7.1 In order to provide an enabling environment to preserve the advantages of the MFI/NBFC structure of Small Finance Banks (SFBs) and with a view to further financial inclusion, SFBs are being allowed a time of 3 years from the date of commencement of business, to align their banking network with the extant guidelines. Till such time, the existing structures may continue and would be treated as ‘Banking Outlets’ though not immediately reckoning for the 25 per cent norm.
7.2 Nevertheless, during this period of 3 years, for all the banking outlets opened or converted from the existing MFI branches in a year, they will have to open 25% banking outlets in unbanked rural centres in the same year. For this purpose, Banking Outlets converted from existing MFI branches means, such of the existing NBFC/MFI branches where it intends to conduct banking business of accepting deposits, allowing encashment of cheques/withdrawals besides carrying out the current lending activities.
7.3 At the end of three years from the date of their commencement of business, all SFBs should have opened in URCs, at least 25 per cent of their total Banking Outlets failing which penal measures including restrictions on further expansion by such banks will be considered and imposed, as deemed appropriate. With a view to bring all entities on a level playing field, this dispensation is applicable to all the existing banks that were NBFCs/MFI earlier as well as NBFC/MFI entities that may apply for bank licence in future.
8. Manning of ATMs/E-kiosks/CDMs/BNAMs
Banks are allowed to set up onsite/offsite Automated Teller Machines (ATMs) at centres/places identified by them, including SEZs. Banks are permitted to post suitable staff member(s) to provide guidance to the customers using the services of these outlets. Such ATMs shall not be reckoned as ‘banking outlets’ as defined in paragraph 3.1 of the circular.
9. Mobile Branches – Extension to All Tiers
Banks are allowed to open/operate mobile branches in all Centres. These mobile branches will not be considered as Banking Outlets.
10. Setting up of Administrative Offices, Back Offices (Central Processing Centres/Service Branches) and Call Centres etc.
10.1 Banks having general permission can set up Administrative Offices (Head/Regional/Zonal Offices etc.), Training Centres, Back Offices (Central Processing Centres (CPCs)/Service Branches), Treasury Branches and Call Centres, etc. without prior permission from Reserve Bank of India.
10.2 The banks should ensure that back offices i.e. CPCs/Service Branches which are set up exclusively to attend to back office functions such as data processing, verification and processing of documents, issuance of cheque books, etc. on requests received from other branches should not have any direct interface with customers for them to be not considered as banking outlets. Banks currently having specific permission to allow customer interface at these back offices (service branches and/or CPCs), have to align with the above instructions within one year from the date of this circular and report compliance to Department of Banking Regulation, Central Office, Reserve Bank of India.
11. Business Facilitator/ Business Correspondent Model
The instructions on Business Facilitator/Business Correspondent Model as contained in our Master Circular DBOD.No.BAPD.BC.7/22.01.001/2014-15 dated July 01, 2014 remain unchanged.
12. Customer Education
While the banks will continue to follow guidelines as indicated in our Master Circular DBOD.No.BAPD.BC.7/22.01.001/2014-15 dated July 01, 2014, they should also ensure to enlighten people about banking outlets as adequate substitutes for physical ‘brick and mortar’ branches in low population density or low population locations.
13. Role of Board of Directors
Financial inclusion being the overarching objective of banking expansion and in view of the operational flexibility being given to the banks, it is necessary that the Boards of the Banks should ensure that arrangements are in place for strict compliance with these guidelines, in letter and spirit. Banks are therefore, advised to put in place a regular off-site and on-site monitoring system of the ‘Banking Outlet’ to ensure proper supervision, ‘uninterrupted service’ and timely addressing of customer grievances. The Board shall regularly review and monitor the transactions in these outlets to see that banking services are being transacted in these outlets and more specifically the target customers for financial inclusion are getting the banking facilities in unbanked rural centres. As such, the Boards of banks should set internal targets for financial inclusion. Data on centre-wise and tier-wise customer accounts and transactions (Type and number of accounts, deposits received, advances made, remittances processed, outstanding balances, etc.) shall be captured on regular basis. As the Small Finance Banks and Payment Banks have been set up to further financial inclusion and their client base would primarily be migrant labour workforce, low income households, small businesses, other unorganised sector entities, etc. their internal targets should be in line with their objectives. The Board shall review the progress in this regard on regular basis, say on quarterly basis and make the required data available to Reserve Bank as and when required and called for.
14. Reporting Requirements
14.1 Banks shall furnish the information as per Proforma I (Annex VI) on opening of new place of business i.e. branch/office/NAIOs (Non Administratively Independent Office) and Proforma II (Annex VII) on change in status – merger, conversion, closure etc. to Department of Statistics and Information Management (DSIM), Banking Statistics Division, Reserve Bank of India, Central Office, C-8/9, Bandra-Kurla Complex, Mumbai-400051.
14.2 As regards fixed point BC outlets classified as ‘banking outlets’, banks are required to report the data as per Annex VIII on quarterly basis starting from April 01, 2017. In order to furnish the initial statistics, banks have to furnish the first such report to DSIM, Reserve Bank of India (position as on March 31, 2017), not later one month from the date of issue of this Circular.
14.3 From the current year 2017-18, the annual reporting on opening of branches to the Department of Banking Regulation, Central Office has been dispensed with.
15. All the salient changes made from the existing branch authorization framework are furnished in the Appendix.