Guidelines released for 24X7 Digital Banking Units (DBUs) by RBI

In the Union Budget of 2022-23, an announcement was made to set up 75 Digital Banking Units (DBUs) in 75 districts of India to commemorate seventy five years of our independence as the Azadi Ka Amrit Mahotsav. In keeping with the announcement made in the budget, the Reserve Bank of India (RBI) released the guidelines on “Establishment of Digital Banking Units (DBUs)”.  These guidelines have been issued to all the domestic scheduled commercial banks.

A committee was set up by RBI on DBUs to recommend guidelines on different aspects of DBUs. The aspects discussed in the said agreement include digital banking unit model, monitoring the functioning of DBUs, facilities being offered in DBUs, IT related aspects, cyber security, DBUs responsibility in spreading of awareness etc. The following guidelines have been finalised on the basis of recommendation of the Committee on DBU.       

What are digital banking units (DBUs)?

Digital banking units (DBUs) are specialised fixed point business unit which house a minimum digital infrastructure in order to provide digital banking products and services along with services related to existing financial products and services digitally. These services will be extended in both self-service mode and assisted mode with the objective of providing the customers cost effective, convenient access and enhanced digital experience of such banking products and services. These units will extend services in an efficient, paperless, connected and secured environment with most services accessible in self-service mode at all times. This means access to these services will be available all year round.        

Applicability of these guidelines for Digital Banking Units

The said guidelines released by RBI shall be applicable to all the domestic Scheduled Commercial banks excluding the following banking institutions:

• Regional rural banks (RRBs)
• Payments Banks (PBs)
• Local Area Banks (LABs)

What are guidelines issued by RBI for digital banking units (DBUs)?

The following guidelines have been issued by the Reserve Bank of India for the establishment of Digital Banking Units (DBUs):

1. Permission for opening of DBUs: RBI has permitted only those scheduled commercial banks (except the RRBs, PBs and LABs) having past digital banking experience. These DBUs are permitted to be set up only in Tier 1 to Tier 6 centres, unless they have been specifically restricted by the central bank, without the need to take permission to set up such units in each case.

However, it must be kept in mind that these DBUs will be considered as Banking Outlets (BOs) as defined under RBI’s circular on “Rationalisation of Branch Authorisation Policy- Revision of Guidelines.”

Once Banking Outlets have been opened during a financial year, it will be deemed that DBU has been opened in a centre from where it sources significant parts of its new business regardless of its physical location.

• Separate infrastructure and resources: every unit of a DBU will be established distinctly having separate entry and exit provisions. These units will be separate from existing Banking Outlets and will possess such formats and designs that appropriate for digital banking users. The banks also need to integrate suitable smart equipment for the front-end purposes. These smart equipments include Interactive Bankers, Interactive Teller Machines, Teller and Cash Recyclers, Service Terminals, Document Uploading, Digital Interactive Wallets, Document Uploading, Video KYC Apparatus, self-service card issuance devices, Video Conferencing Facilities, secured and connected environment for using own devices for digital banking to set up a DBU.

Complying with the relevant guidelines, the above mentioned facilities can be either out-sourced or in-sourced. However, with respect to the back-end including the core banking systems and other back office related information systems for digital banking services and products; they can be shared with the existing systems with logical separation.

The other option available with the bank is to adopt core-independent digital native technologies which will help in scaling of the business, increasing flexibility in creating new digital environments by continuous development and deployment of software and further increasing interconnectivity specifically for this business vertical in consonance with their digital strategy.

Where the digital banking vertical of the bank intends to integrate application programming interface (API)^[1] to connect with external third party application providers, then the same needs to be tested in an isolated environment before the same gets integrated in the bank’s core systems. This process of API integration further needs to be backed by comprehensive risk evaluation and adequate documentation.

It must be noted that there is no obligation on the banks to in-source the operations model for digital banking segment. The banks are free to choose between both in-sourced and out-sourced digital banking segment including DBUs. It is the encumbent upon banks to plan and put in place an in-situ or remote assisted mode arrangements in right proportion as the objective of setting up DBUs is to efficiently integrate the digital infrastructure with human touch.

Setting up of DBUs should be integral part of the digital banking strategy of the bank where the administrative structure and operational governance of the DBU is perfectly aligned with the Digital Banking segment of the bank.

In order to give a fillip to the digital banking initiatives of the bank, every DBU will be headed by a senior and experienced officer of the bank preferably a Scale III or above for Public Sector Banks. An officer of an equivalent rank will be appointed for other banks who will be designated as the Chief Operating Officer (COO) of the DBU.   

• Safeguards for Cyber Security: In order to save the DBU from potential cyber attacks and other such dangers, the banks need to deploy adequate safeguards for cyber security for the DBUs.

• Minimum digital services on offer: The banks have to put on offer a minimum number of digital products and services. The products on offer for the digital banking vertical should on both assets and liabilities side of the balance sheet. Digitally value added service also fall in the above category. 

The Digital Banking Units are expected to upgrade their standardised products to more custom made products using their high quality interactive capabilities. RBI has prescribed an illustrative list of minimum number of products and self-fulfilment services that a DBU needs to offer. This does not restrict the bank to offer any other digital product or service in addition to the prescribed list to handle the needs and requirements of a particular area. Any service or product which can be offered in a digital medium through mobile banking or digital banking can be provided in the DBU.

It must be remembered that any service which has been specifically barred to be offered according to the Banking Regulations Act 1949 shall not be offered by the DBU.    

• Increase customer awareness about digital banking: The duty of DBUs is not only limited to onboarding of customers to a fully digital environment, it also extends to offer various tools and methods for increasing hands-on customer education and awareness on the safety of digital banking products and practices so that such customers can be integrated to self-service digital banking services.

RBI has directed that this effort of digital penetration has to be translated into incremental digital penetration of the financial products and services a DBU of offering and continuous monitoring of the same needs to be done.

• Expansion of virtual footprint: In times to come, the DBUs need to engage the services of business facilitators/ business correspondents for the purpose of increasing the virtual foothold of the DBUs. The said expansion has to be done in conformity with the prevalent regulations.

• Digital Redressal mechanism: RBI has directed that an adequate digital dispute redressal mechanism should be put in place to provide real time assistance to the customers and redressal of their grievances arising from the products and services offered by the DBUs either directly or through business facilitators.

• RBI’s directions on reporting: According to the provisions of the Reserve Bank of India (Financial Statements – Presentation and Disclosures) Directions, 2021, the Apex Bank has directed the banks to report Digital Banking vertical as a sub-segment within the existing “Retail Banking Segment”. A clarification needs to be made here is that the digital banking products and services which are applicable to the vertical of business ‘Retail Banking’ is not required to be reported at this stage.  Banks are also required to furnish information or report events like opening, shifting, merger or closure of the DBUs to the Department of Statistics and Information Management (DSIM) in an online format through Central Information System for Banking Infrastructure (CISBI).

Information and updates related to the performance of the DBUs also needs to be furnished in a predefined reporting format to the Department of Supervision, RBI both on a monthly basis and also in a consolidated form in Annual Report to the RBI. 

• Review of progress by BOD: RBI has made it the responsibility of the Board of Directors to ensure that the provisions relating to on-site and off-site monitoring system covers all aspects of the guidelines in order to achieve the overarching objectives of expansion of financial services and financial inclusion with the amount of operational flexibility given to the banks.

The Board of Directors or a committee of the board has also been entrusted with the task of reviewing the progress and key performance indicators of the digital banking services including that of DBUs after regular intervals. Such review covers both the business and risk aspects of the vertical.

1. A bouquet of minimum products and services to be offered by DBUs: The DBUs are supposed to offer a bouquet of minimum digital banking products and services which includes facilities like current account, savings account, fixed deposit and recurring deposits along with a digital kit for customers that includes internet and mobile banking, credit card, debit card, UPI QR code, mass transit system, POS machines, BHIM Aadhaar etc. is also offered.

To reduce the use of physical cash across the counters, emphasis is given on cash withdrawal and cash deposit through Automated Teller Machines (ATM) and Cash Deposit machines. Other facilities that are being made available include NEFT, internet banking kiosk, IMPS, NEFT, account opening kiosk, lodging of grievances, updation of KYC, digital onboarding of customers for various schemes (Pradhan Mantri Jeevan Jyoti Bima Yojana for Insurance onboarding, Atal Pension Yojana and Pradhan Mantri Suraksha Bima Yojana).

DBUs are also suffering applications for onboarding of customers for identified retail, MSME or other scheme loans.    

Conclusion

The guidelines regarding establishment of DBUs have been framed keeping in mind the objectives of financial inclusion and integrating Tier 1 – Tier 6 cities. The guidelines have been framed in furtherance of the goal of extending the benefits of digital banking to those places that have been deprived of basic services for a long time. The unique thing about the guidelines on Digital Banking Units is that these units will be operational all round the year with the facility of self-service for most of the services. The technology has been leveraged to penetrate the banking services in tier 6 cities where banking services are not present because it is not economically feasible for the banks. Further, the guidelines have also gone a step further in just providing access to these services. They have also kept in mind customer education and awareness so that they can optimally use these services. 

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