Digital Banking Units

In News

• The Finance Minister in her Budget announcement envisaged setting up 75 digital banking units in 75 districts of the country. 

Digital Banking Units

• History:
  • In India, digital banking started taking shape in the late 1990s with ICICI Bank being the first one to bring the service to their retail clients.
• Meaning:
  • It is a business unit or hub with some digital infrastructure that helps in delivering banking products and services, in a digital form, in self-service mode.
  • In simpler language, all the traditional bank work like depositing cheques, pay-in slips etc., will happen digitally in these units.
• Players:
  • Commercial banks (other than regional rural banks, payment banks and local area banks) with past digital banking experience are permitted to open DBUs in tier 1 to tier 6 centres.
  • They are not required to take permission from the Reserve Bank of India (RBI) in each case.
• Need:
  • This is being done to give a push to financial inclusion in the country.
  • It was announced in order to ensure that digital banking reaches every nook and corner of the country and increases the speed of payments.
• Services:
  • Helping in opening saving accounts to receive money under government schemes.
  • Helping the customers in making Fixed deposits (FDs) and Recurring Deposits (RDs) along with internet banking.
  • Providing digital kits for merchants as well as customers.
  • Providing UPI QR Code and Point of Sale (PoS) mechanism.
  • Supply of Debit and credit cards, allowing ATM transactions.
  • Helping customers with the application for MSME loans.
• Other functions:
  • Other services include making applications for and onboarding of customers for identified retail, MSME or schematic loans.
  • This may also include end-to-end digital processing of such loans, starting from online application to disbursal and identified government sponsored schemes that are covered under the national portal.
• Global Scenario:
  • Digital banks have been around since 2014-15 in markets such as Hong Kong, Singapore, Malaysia, China, the UK and the US.

Disadvantages of Digital Banking

• The limitations of DBU include low public awareness and internet penetration in lower-tier cities.
• Digital banking forums are prone to vulnerabilities and hacks such as phishing, pharming, identity theft, and keylogging.
• Huge investment needed: Banking institutions are investing a lot in their security systems.

Significance of Digital Banking

• The flow of credit will improve in the rural areas.
• Poor will get easier access to money and loans.
• The establishment of these units will be cheaper than the conventional brick and mortar units.
• They will provide better technical support to customers.
• Digital Units will decrease the manpower requirement.
• For the scheduled banks, they will ensure steady profits.
• DBUs will help the government enhance digital literacy.

Source: IE