In today’s Finshots, we discuss how Digital Banking Units (DBUs) can up India’s financial inclusion game.

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The Story

Do you ever wonder why we have ATMs, cash deposit machines and passbook printing kiosks? Yes, they make your life easier. But they also aid productivity within banking institutions. No long queues, limited waiting periods and you can do away with needless human intervention.

But there’s a problem. They all serve important functions, and yet they aren’t always ubiquitous. Sure, you’ll find ATMs scattered across most parts of the country. But Cash Deposit Machines? And passbook kiosks? Those you don’t see often. And you rarely see all three together. It’s like finding a unicorn in the wild.

Rare! Very rare!!!

And that means you have to visit the nearest physical branch to get the full banking experience. You may also need a bank representative to help you out. And you may have to spend a couple of hours in the process. It’s cumbersome.

Now, the Indian government wants to change that. A few days ago, it announced the launch of 75 Digital Banking Units (DBUs).

What are DBUs?

Well, it’s much like an actual bank branch, but without all the overhead. It’ll offer traditional banking services — including cash withdrawals, deposits, passbook printing, statement generation and fixed or recurring deposits. It may even offer more complex services — loan applications and the ability to open savings or current accounts.

But these DBUs will mostly be digital and they’ll be open 24x7. So if you ever want to live on the edge and open a savings account at 12 am, then that might very well be possible.

Also, scheduled banks (excluding regional rural banks, payment banks and local area banks) with some digital banking experience can set up DBUs across the country — from tier 1 to tier 6 areas. Without any permission from the RBI.

And if everything works out, DBUs could significantly improve the quality of banking services in the country. Especially within public sector banks.

How’s that, you ask?

Okay, so in 2019, a couple of professors from Kerala conducted a study on ‘Work Pressure and Employee Involvement in State Bank of India (SBI)’. Now it’ll come as no surprise to you that there’s considerable work pressure at the SBI. Despite all the jokes we often hear, it isn’t a pleasant experience, especially for the employees. And as work pressure builds up, employee output reduces drastically. This inevitably translates to poor customer experience.

Now here’s the thing. According to unofficial data from published annual reports (2020), SBI has 19,000 customers per branch and only 1 employee to serve about 1680 customers. Compare that to HDFC Bank that has 10,000 customers per branch and 1 employee for every 467 customers and you can see why the quality of service probably varies across these two banks.

So, if DBUs make a dent, this could be a boon to public sector banks. It could help them focus on the really important things and then leave the more mundane jobs to these semi-digital entities.

But here’s the most important bit about DBUs. They aren’t simply meant to reduce footfall or alleviate employee stress in banks. They may have a bigger role to play. They may help aid financial inclusion.

You see, there are only 14 bank branches for every 100,000 people in India compared to the UK and US which have upwards of 25 branches per 100,000 people. And while it may not be easy to set up branches in every nook and cranny of the country, smaller DBUs could be the way forward to reach the unbanked.

But financial inclusion isn’t just about having the infrastructure available. It’s about how readily people can use banking services as well.

To put things in perspective, let’s look at RBI’s financial inclusion index or what’s called the FI index.

In FY21, the value of the FI Index was 53.9. For context, if an index inches closer to 100, it indicates complete financial inclusion. And anything close to 0 means full financial exclusion. Now to arrive at this singular figure, the RBI takes into account 97 indicators across 3 key metrics — access, usage, and quality. And that’s where things get interesting.

The number derived for the sub-index “Access” rose from 61.7 to 73.3 between 2017 and 2021. That means the available financial infrastructure was becoming increasingly more accessible to Indians during this period. But sadly, the two other sub-indices pulled the final FI index down. In 2021, we scored only 43 for Usage. So despite making the infrastructure more accessible, the RBI noted that people simply weren’t using them enough. And on the other sub-index of Quality (that measures literacy etc) we only scored 50.7.

That’s what we need to fix.

So, how are DBUs going to solve for Quality and Usage, you wonder?

Here’s something we didn’t tell you at the start. Remember how we noted that DBUs would be ‘mostly digital’? Well, the thing is, every DBU will have both a Self-Service Zone and a Digital Assistance Zone. That means, there will be at least 2 bank staff that’ll be manning the booth to help people out when they need it. So it’s a ‘phygital’ unit really. You know — physical + digital.

But whatever we want to call it, let’s hope that DBUs succeed in their primary aim — improving financial literacy and inclusion in the country.

Until then...

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