To boost financial inclusion, govt looks to double digital banking units, expand their offerings

The union government proposes to expand the network of digital banking units (DBU) across the country by nearly doubling their number to around 200 in just over a year. It may also allow DBU to provide a larger bouquet of financial products including insurance policies and other financial-inclusion products and schemes of the government, two people aware of the development said.

DBUs are specialised, fixed-point business units or hubs equipped with certain minimum digital infrastructure to deliver digital banking products and services as well as servicing existing financial products and services digitally in a convenient and cost-effective way.

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“Ever since their launch in 2022, DBUs have constantly been expanded to cover all parts of the country, especially semi-urban, rural and remote areas that have limited access to banking services and no digital services. More than 100 DBUs are now operational and we want to fast-track the programme so that a similar number is added by the end of the next fiscal year,” said the first person cited above.

Insurance and pension products

While DBUs currently provide ATM-like services – such as depositing and withdrawing cash from bank accounts – the government plans to expand their mandate to include financial products such as insurance and pension. For new products, assisted services will be available for ease of delivery. 

“The idea is to extend basic digital services for delivering a host of financial products through the infrastructure set up under DBUs. This will help DBUs turn into a major vehicle of financial inclusion, bringing banking and financial services to the doorsteps of people in unbanked or areas with limited financial services,” said the second person cited above. The government is also expected to nudge private-sector banks to create DBUs in semi-urban areas to accelerate the growth of India’s digital financial ecosystem.

Queries sent to the ministry of finance and the department of financial services remained unanswered.

‘Financial literacy needed first’

For customers who are adept at digital banking, DBUs aim to provide a fast, convenient and secure experience. They are especially meant for those in remote areas with low banking penetration as they significantly reduce the cost of operating and maintaining bank branches. 

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But to create value at scale, the government will first need to spread financial literacy in rural and remote areas, said Aarthy Rangarajan, partner – financial services consulting at EY India. “To scale up and create value, DBUs must make it their priority to conduct financial-products advocacy, and spread digital literacy and awareness about security and fraud. For DBUs to expand and scale, the government must prioritise educating the masses on the basics of banking, how to leverage banks to enrich their lives, and cyber security,” he said.

Once their mandate is expanded, DBUs will also start contributing to the government’s financial-inclusion initiatives such as Pradhan Mantri Jan Dhan Yojana (PMJDY), Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), Atal Pension Yojana (APY), and Prime Minister Street Vendor's AtmaNirbhar Nidhi (PM SVANidhi). The government also plans for them to issue Kisan Credit Cards (KCC) and cater to direct-benefit-transfer beneficiaries digitally.

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Other challenges

The delivery of insurance and other financial products to remote parts of the country remains a challenge for the government, and while DBUs are expected to help with the delivery of such services, several hurdles remain. 

Rangarajan said, “Clear, simplified regulatory guidelines on operating DBUs are very important to stay compliant and incur limited overheads. Besides, stable internet connectivity and uninterrupted power supply need to be ensured for seamless delivery of DBU operations. Effective governance and advocacy must be in place to mitigate and manage any data-related fraud or cyber incidents. Also, banks will have to devise innovative ways of operating these DBUs to augment the value creation.”