Revolutionizing Indian Banking Ecosystem With RBI’s Mandate On Digital Banking Unit (DBU)

In the last budget speech, the finance minister announced setting around 75 digital bank units in 75 districts. Closely following the heels, RBI, on 07th April 2022, released a mandate to set up a Digital Banking Unit(DBU). The circular has come into effect immediately.

What is a DBU?

DBUs, in physical terms, are separate digital outlets to be set up by the banks to offer digital customer journeys that focus on easing customer pain points through digitization and automation. The DBU should be a well-balanced blend of digital automation and human touch. Services must be available in both self-service and assisted modes. However, the scope is much broader than branch banking. It extends mobile, internet, and correspondent-based banking. As of now, the DBU will focus on the retail segment, but banks can take this as an opportunity to provide digital services for SME and corporate customers.

Who has to set up the DBU?

At present, scheduled commercial banks across the country have to set up DBUs in tier 1 to tier 6 centres. There is no specific approval required from RBI to enable this. This excludes Regional Rural Banks(RRB), payments banks and Local Area Banks(LAB). Non-Banking Finance Corporation(NBFC) has not been mentioned, but we can be sure that RBI will ask NBFCs to set up DBUs sometime (maybe with some dilution on the rules).

What are the services required to be provided under DBU?

Liability of products and services

Liability of products and services can be described as digital account opening for CASA, recurring and term deposits, card spectrum products and digital payment enablements products such as UPI, POS and BHIM Aadhar.

Asset products and services

This can be loan origination and disbursal for retail and SME customers, government-sponsored credit schemes etc.

Digital services

Digital service can be explained as kiosk related self-service and assisted services from a branch perspective.

Other salient aspects of DBU

  • DBU units will be separately housed. The front end and API enabled solution can be insourced or outsourced from fintech vendors, while the back end can be shared with the existing core banking solution. Banks can alternatively use digital native solutions to establish DBU.
  • Cyber security has to be a key consideration while deploying DBU
  • Customer education should be prioritized when providing new self-service functionalities.
  • Banks can employ business correspondents or digital facilitators to enable digital services to the customer.
  • Adequate customer grievance mechanism has to be provided as part of the DBU
  • Banks should report the business arising out of DBU separately. In future, banks may be mandated to report the DBU P&L separately.
  • Bank should have a dedicated senior management team that focuses and manages the digital strategy within DBU.

What does this mean for banks?

Providing a digital journey is no longer a fashion statement, but with the latest mandate from RBI, it has become a regulatory requirement. As per Niti Ayog, RBI may role out pure-play digital bank licenses in the coming years. It is clear that RBI wants all banks to be ready for the digital race to compete with pure digital banks by the time they come into existence. Certain private banks and very few PSU banks have already made good strides in the digital transformation journeys. But it is a wake-up call to stay relevant in the market for a whole lot.

What about neo banks that are already in existence?

Those banks who will not be able to roll out digital services independently can partner with neo banks and provide digital services through a partnership or white labeling of services. So, neo banks will be more relevant in this context.

How does the mandate affect the fintech companies in India?

The mandate is indeed a blessing for fintech service providers in India, as most banks will now look out to enable digital services through the fintech providers. Fintech companies that offer the solution affordably and at scale will be in demand. Solution providers can enable the solution as complete SaaS, which will be a ‘pay as you use’ model that will reduce the burden of banks from a CAPEX perspective.

What do banks need to do now?

Rather than looking at DBUs from a regulatory standpoint, banks need to view this as an opportunity to win the customer’s trust by solving the real-life pain points. Banks can also use this opportunity to start their data journey, which will eventually help them understand their customers accurately and provide personalised products.

How can Profinch help?

Profinch has been helping lot of banks on their digital transformation journey through 2 of our own products FinFlowz and FinCluez. Now, Profinch be the partner of choice for banks in operationalizing DBU setup.

 

One of the key aspects of DBU is to provide customers perfect self-service and assisted customer journey. This can be achieved through FinFlowz Kiosk banking and FinFlowz tablet banking. For self-service through mobile app or kiosk, functionalities like customer onboarding, loan origination, digital wallet can be readily deployed. On assisted model, bank can create a digital branch with FinFlowz solution where relationship manager/teller with help of tablet device can carry out customer services and teller services respectively.

DBU also need to strengthen their correspondent banking network by providing banking service to last mile customer. FinFlowz agency banking solution can help banks establish a well-managed correspondent network with all essential banking services. Since FinFlowz is a product platform, bespoke workflows specific to DBU can be setup with ease.

As we discussed above, it is right time for banks to indulge in a holistic data journey rather than taking a piece meal approach.

Eventually, banks having DBUs will be asked to maintain a full-fledged data warehouse solution with analytical and reporting capabilities, FinCluez can help the banks in their data journey by proving a centralized data repository (CDR) – the first step in the data journey. The CDR will serve as single source of truth available within the banking ecosystem. DBUs will eventually need to report the business proceedings to RBI as part of regulatory reporting. FinCluez can help in churning out ready to submit regulatory reports pertaining to DBU.

With the readily available banking data marts, MIS reports and visually enriched dashboards help the bank management to understand the performance of DBU. Senior management team managing DBU will be able to take important business decisions based on the dashboards available. This will help the bank take informed business decisions. .

Some use case are listed below
1) Feedback and sentiment analytics – To help position right product with right branding
2) Provide personalized tips for customers – To enable goal based savings culture
3) Loan default predictive analytics – calculate risk on credit exposure.

Profinch can enable the digital solutions for banks setting up DBU as SaaS model which will ensure that bank’s capex costs are reduced.

Please reach out to us for further information on enabling DBU for banks.

Author: Sriram Ganesan, Associate VP – Presales, Profinch Solutions