Bank Mitra (Business Correspondent)

Bank Mitra, also known as the Business Correspondent (BC), is a crucial institutional mechanism introduced to extend formal banking services to underserved and unbanked areas of India. In the context of banking, finance, and the Indian economy, Bank Mitras play a pivotal role in advancing financial inclusion, bridging the gap between banks and rural, semi-urban, and marginalised populations. They act as representatives of banks, delivering basic banking services at the doorstep of customers who otherwise face geographical, economic, or social barriers to accessing financial institutions.

Background and Evolution of the Bank Mitra Model

The concept of Business Correspondents was formally introduced by the Reserve Bank of India (RBI) in 2006 as part of its financial inclusion strategy. Traditional branch-led banking was found to be costly and inadequate for reaching remote and sparsely populated regions. To overcome these limitations, RBI permitted banks to engage intermediaries to provide banking services outside conventional branches.
The term Bank Mitra gained popularity at the grassroots level as a people-friendly identity for Business Correspondents, reflecting their role as a “friend of the bank” and the community.

Objectives of the Bank Mitra Scheme

The primary objective of the Bank Mitra model is to promote inclusive growth by ensuring universal access to banking services. Specific objectives include:

• Extending banking services to unbanked villages and habitations.
• Mobilising savings and promoting formal financial habits.
• Facilitating access to credit for small borrowers.
• Enabling direct benefit transfers and welfare payments.
• Reducing dependence on informal moneylenders.

By decentralising banking delivery, Bank Mitras help integrate marginalised sections into the formal financial system.

Role and Functions of Bank Mitra

Bank Mitras perform a range of basic banking functions on behalf of banks, using technology-enabled platforms. Their key functions include:

• Opening Basic Savings Bank Deposit Accounts (BSBDAs), including Jan Dhan accounts.
• Accepting small-value deposits and facilitating withdrawals.
• Enabling remittances and fund transfers.
• Disbursing government benefits under Direct Benefit Transfer (DBT) schemes.
• Collecting loan applications and supporting recovery.
• Promoting financial literacy and awareness.

These services are typically delivered using micro-ATMs, biometric authentication, and mobile connectivity.

Eligibility and Appointment of Bank Mitra

Banks are permitted to appoint a wide range of entities as Business Correspondents, subject to RBI guidelines. Eligible entities include:

• Individuals such as retired bank employees, teachers, or local residents.
• Non-governmental organisations and self-help groups.
• Microfinance institutions.
• Cooperative societies and companies.

Selection emphasises local familiarity, trustworthiness, and basic financial literacy to ensure effective service delivery.

Technology and Operational Framework

Technology forms the backbone of the Bank Mitra system. Transactions are conducted through interoperable platforms linked to the bank’s core banking system. Common technological features include:

• Biometric authentication using Aadhaar.
• Real-time transaction processing.
• Micro-ATMs and handheld devices.
• Mobile banking and payment interfaces.

This technology-driven approach ensures transparency, security, and instant account updates, even in remote locations.

Bank Mitra and Financial Inclusion Initiatives

Bank Mitras have been instrumental in the implementation of major national financial inclusion programmes, including:

• Pradhan Mantri Jan Dhan Yojana (PMJDY).
• Pradhan Mantri Jeevan Jyoti Bima Yojana and Suraksha Bima Yojana.
• Atal Pension Yojana.
• Disbursement of subsidies under LPG, pensions, scholarships, and wage payments.

During periods of economic stress, such as the pandemic, Bank Mitras played a critical role in ensuring uninterrupted access to cash and benefits.

Importance in the Indian Banking System

For banks, the Bank Mitra model offers a cost-effective alternative to branch expansion. It enables banks to fulfil priority sector and financial inclusion mandates without incurring high operational costs.
For customers, Bank Mitras provide:

• Proximity-based banking services.
• Reduced travel time and cost.
• Trust-based interactions in familiar local settings.

This mutually beneficial arrangement strengthens the outreach and efficiency of the banking system.

Regulatory Oversight and Safeguards

The RBI regulates the Business Correspondent model to ensure customer protection and system integrity. Key safeguards include:

• Caps on transaction limits.
• Clear disclosure of service charges.
• Grievance redressal mechanisms.
• Regular monitoring by sponsoring banks.
• Prohibition of BCs from charging unauthorised fees.

Banks retain full responsibility for the acts of their Bank Mitras, ensuring accountability.

Challenges and Limitations

Despite its success, the Bank Mitra model faces several challenges:

• Low remuneration and income instability for BCs.
• Technological issues such as poor connectivity.
• Limited training and skill development.
• Risk of fraud and miscommunication.
• High attrition rates among Bank Mitras.