DIGITAL BANKING UNITS
1. Context
Prime Minister Narendra Modi on Sunday (October 16 ) dedicated 75 digital banking units to the nations, taking forward an announcement that was made in the 2022-23 Union Budget by Finance Minister Nirmala Sitaraman.
2. What are Digital Banking Units?
A digital banking unit is a specialized fixed point business unit or hub, housing a certain minimum digital infrastructure for delivering digital banking products and services as well as servicing existing financial products and services digitally in self-service mode at any time.
The DBUs are being set up to ensure the benefits of digital banking reach every nook and corner of the country and will cover all the States and Union territories.
3. Who will set up these DBUs
Commercial banks (other than regional rural banks, payments banks, and local area banks) with past digital banking experience are permitted to open DBUs in tier 1 to tier 6 centers unless otherwise specifically restricted, without needing to take permission from the RBI in each case.
4. Services provided by DBUs
- As per the RBI, each DBU must offer a certain minimum of digital banking products and services. Such products should be on both liabilities and assets side of the balance sheet of the digital banking segment. Digitally value-added services to conventional products would also qualify as such.
- The services include saving bank accounts under various schemes, current accounts, fixed deposit, and recurring deposits accounts, digital kits for customers, mobile banking, Internet banking, debit cards, credit cards, mass transit system cards, digital kits for merchants, UPI QR codes, BHIM Aadhaar and point of sale (POS).
- Other services include making applications for and onboarding customers for identified retail, MSME, or schematic loans. This may also include end-to-end digital processing of such loans, starting from the online application to disbursal and identified government-sponsored schemes that are covered under the national portal.
5. Difference between DBU and Traditional Banks
- DBU will provide banking services including cash deposit & withdrawal 24 x 7. Services of DBU will be provided digitally.
- People not having connectivity or computing devices can do banking transactions from DBU in a paperless mode. Bank staff will be available to help and guide users for banking transactions in assisted mode.
6. Significance of Digital Banking Units
- The flow of credit will improve in rural areas.
- The establishment of these units will be cheaper than the conventional brick-and-mortar units.
- They will provide better technical support to customers.
- Poor will get easier access to money and loans. Digital units will decrease the manpower requirement.
7. Disadvantages of Digital Banking
- Huge investment is needed and banking institutions are investing a lot in their security systems.
- Digital banking forums are prone to vulnerabilities and hacks such as phishing, pharming, identity theft, and keylogging.
- The limitations of DBU include low public awareness and internet penetration in lower-tier cities.
8. DBUs VS Fintechs
Fintechs operating as neobanks offer digital banking services but they do so in partnership with non-banking financial companies (NBFCs). some of the neobanks offering services in India are Jupiter, Fi Money, Niyo, and Razorpay X.
Compared to conventional banks with online and mobile banking facilities, neobanks or digital banks excel at product innovation and offer far better digital solutions.
For Prelims & Mains
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For prelims: Digital Banking units, Internet banking, Mobile banking, UPI QR Code, BHIM Aadhaar, point of sale (POS), Fintechs.
For Mains: 1. What are Digital Banking Units? How will it boost India's digital economy in the era of the digital world (250 words)
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Source: The Indian Express
