Banking Services in Rural India Under Threat
The recent decline in the number of Banking Correspondent (BC) outlets in India raises serious concerns about the future of last-mile banking services, particularly in rural areas. According to the Reserve Bank of India (RBI), the number of BC outlets has plummeted by 2.3 lakh, decreasing from 15.47 lakh in FY24 to 13.1 lakh in FY25. This significant drop signals a potential setback for financial inclusion efforts aimed at serving unbanked populations.
Most of the closures have occurred in villages with populations exceeding 2,000. These areas typically house economically weaker sections, small farmers, and senior citizens who rely heavily on basic banking services. The loss of BC outlets means that these individuals are increasingly deprived of access to essential banking functions such as cash withdrawals, deposits, and grievance redressal.
The data shows that after a surge in the number of BCs from 5.41 lakh in 2020 to 15.47 lakh in 2024, the sustainability of this model has come into question. Many bankers highlight that the BC framework has been facing challenges, particularly in rural locales where operating costs are rising without a corresponding increase in commission income. The earnings of BCs are often linked to transaction volumes, which remain low in smaller villages.
As costs for biometric devices, cash handling, and cybersecurity rise, many BCs struggle to stay afloat. An official from a public sector bank pointed out that the operating expenses for BCs have surged in recent years, while their income has not kept pace. This situation is unsustainable, especially in rural areas where BCs serve as a vital link in the banking ecosystem.
The Maharashtra State Bank Mitras Association (MSBA) has attributed the alarming decline in BC outlets to policy-related shortcomings. They argue that policy decisions surrounding BC operations are inadequate, marked by low remuneration and high operational costs, making it increasingly difficult for BCs to operate profitably.
As BCs are vital for last-mile delivery of financial services, the RBI is reportedly reviewing the Business Correspondent model and related schemes. The need for urgent policy reforms is evident to ensure that banking services remain accessible, especially for the vulnerable populations in rural India.
Without these reforms, the risk of disrupting the entire Direct Benefit Transfer (DBT) ecosystem looms large, which could ultimately deepen inequality and increase rural distress. The responsibility to ensure sustainable banking access falls on all stakeholders, including the Reserve Bank of India and the Government of India.
