Digital Banking Units

 Context

Recently, the Union Finance Minister reiterated the Budget announcement on setting up 75 digital banking units in 75 districts of the country this year. 


Background

  • Digital banking involves the digitization of all traditional banking products, processes and activities to serve customers through online channels. 
  • The government is continuously encouraging digital banking, digital payments and Fintech innovation to ensure that the benefits of banking reach every nook and corner of the country, in a consumer-friendly manner. 
  • In continuation to this, the Union Budget 2022-23 announced setting up 75 Digital Banking Units (DBUs) in 75 districts to commemorate the 75 years of independence of our country (Azadi ka Amrit Mahotsav). 

What are Digital Banking Units? 

  • As per the guidelines released by RBI, a digital banking unit is a specialised fixed point business unit, housing a certain minimum digital infrastructure, that helps in delivering banking products and services digitally in a self-service model. 
  • It will be treated as banking outlets operating under the retail banking division of the bank. 
  • DBUs will deliver new digital products and services and service existing financial products digitally, in a cost-effective, efficient and secure manner with 24x7 availability. 
  • The establishment of DBUs should be part of the digital banking strategy of the bank. 
  • Adequate digital mechanisms for real-time assistance and customer grievance redressal need to be offered by the DBUs directly or through Business Facilitators / Correspondents. 

Who can set up Digital Banking Units? 

  • Commercial banks (other than Regional Rural Banks, Payment Banks and Local Area Banks) that have been offering digital banking in India, are allowed to set up DBUs in tier 1 to tier 6 cities. 
  • They are not required to take permission from the Reserve Bank of India (RBI) in each case. 

Services provided by Digital Banking Units 

  • Each DBU is required to offer minimum digital banking products and services on both the liability and assets side of the balance sheet. 
    • Liability side products and services: 
      • Account opening (Savings, Current, recurring deposits, etc.), 
      • Digital kit for customers (mobile and internet banking, debit and credit cards, and mass transit system cards), 
      • Digital kits for merchants (UPI QR code, BHIM Aadhaar, POS, among others). 
    • Asset side products and services: Making applications for and onboarding of customers for
      • Identified retail, MSME or schematic loans; 
      • Identified Government-sponsored schemes which are covered under the National Portal. 
    • Digital services: 
      • Cash withdrawal and cash deposit only through ATM and Cash Deposit Machines respectively; 
      • Passbook printing and statement generation; 
      • Internet banking kiosk; transfer of funds; updation of KYC and other personal details. 
  • Banks have the freedom to offer any other digital product or service in addition to the minimum bouquet to cater to the specific needs of the service area. 
  • The DBUs are expected to migrate to more structured and custom made products, from standard offerings by use of their hybrid and high-quality interactive capabilities.

Significance and challenges of Digital Banking Units


Conclusion

Digital banking will shape India’s banking sector with cheaper banking alternatives and varied innovative financial products and services becoming more readily available. Thus, digital banking can act as a catalyst for achieving greater financial inclusion in India. 

Q. With reference to the Digital Banking Units (DBUs), seen recently in the news, which of the following statements is/are correct? 

1. Digital Banking Units are treated as banking outlets operating under the retail banking division of the bank. 

2. Commercial banks need to take a special license from the Reserve Bank of India (RBI) for establishing Digital Banking Units. 

3. Each DBU is required to offer minimum digital banking products and services on both the liability and assets side of the balance sheet. 

Select the correct answer using the codes given below: 

(a) 1 and 3 only     (b) 2 only     (c) 2 and 3 only     (d) 1, 2 and 3 

Ans. (a) 

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