BC / BF - 4 , Banking Fundamentals to Know for Students.

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HOW THE BC OPERATES 

The legal relationship between the BC and the bank is that of an Agent and Principal bound by a legally enforceable contract. The BC, in turn, employs CSPs are sub-agents of the banks. The BC gets compensated by the bank for the services rendered which are shared with the CSP and the technology provider. The technology provider acts as a link between the bank, BC, CSP and the client creating an enabling environment using technology. 
How the System Operates

1.    The BC and technology providers are selected by the Bank through an open bid process. After evaluating the technological capability of the technology partner of the BC, the contract is awarded to the BC which gives the lowest (L-1) quote.

2.    The BC employs, sometimes in consultation with the Bank, the CSPs who could be educated unemployed youth from the same area, existing retailers, members of the SHG or suitable persons who are permanent residents.

3.    An area of operation is assigned by the Bank to the CSP which is usually a Gram Panchayath or group of Panchayath/villages.

4.    The CSP is assigned a linked branch within the distance criteria stipulated by RBI.

5.    The CSP is given basic training and equipment. The cost of equipment is borne by the CSP or by the technology Company/BC or sometimes by the Bank.

6.    At the front end, the point of service terminal usually consists of a reader, printer, mobile phone connectivity, and RFID smart card which communicate through Near Field Communication (NFC) Protocol. The configuration may vary for the Kiosk model and mobile phone model.

7.    The terminal can handle both, online and offline, transactions.

8.    The terminal is connected to the server of the technology service provider through a broadband/ GSM/GPRS mobile device. The server is interfaced with the bank's core banking server.

9.    The biometric identification is stored in the terminal of the CSP for easy access.

10.  No frill accounts are opened by the CSP by capturing the fingerprints and photographs of the clients and obtaining account opening forms with KYC documents.

11.  The account opening forms with all data captured is sent electronically to the Bank. The base /mother branch/ opens the account after verifying KYC documents and authorizes the issue of a smart card to the client. The process takes about 15 days or sometimes more.

12.  Thereafter, the client can operate the account - deposit or withdraw cash - using the smart card through the CSP.

13.  The mobile phone/laptop of the CSP terminal has all client details which are validated using the smart card and positive identification is established through the fingerprint reader. All transactions pass through the server of the technology provider. The account of the client is debited or credited in real-time or at the end of the day. To enable this, the CSP maintains an escrow or imprest account with the base branch with enough cash balance. The account is frequently replenished by the CSP depending on the operations. The CSP/BC also does reconciliation of accounts on daily/weekly intervals.

14.  The client can also receive MNREGS payments, old-age pension, and other benefits through the account.

15.  The payment of commission to the BC is settled by the bank at the end of each payment cycle which usually is one month depending on the number and volume of transactions.

16.  Though the system appears simple, it is facing several challenges due to various factors including deficiency of infrastructure etc., which is discussed in detail elsewhere in this report.

Cash Management: The CSP/BC is required to maintain sufficiently liquidity by way of deposit with the Bank or can take an Overdraft facility from the branch in whose service area the BC is operating. For instance, liquidity to be maintained by the CSP ranges between Rs10,000 to Rs 25,000/-
Security Deposit: In terms of Bank's Policy, the BC would be required to keep a security deposit equivalent to a fixed percentage of the expected business volumes of a year.