Explained: What are Digital Banking Units, and what services will they provide?

What is the News?

The Finance Minister has reiterated her Budget announcement on setting up 75 digital banking units in 75 districts of the country this year. 

What are Digital Banking Units(DBU)?

DBU is a specialized business unit of a bank that houses certain minimum digital banking products and services. 

A bank can offer specialized digital products at any time all year from these units and also provide existing financial services products.

Who will set up this DBUs?

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 without having the need to take permission from the RBI in each case.

What services can DBUs provide?

As per the RBI, each DBU must offer certain minimum digital banking products and services. Such products should be on both liabilities and assets side of the balance sheet of the digital banking segment. 

The services include savings bank accounts under various schemes, current accounts, fixed deposits and recurring deposit accounts, digital kit for customers, mobile banking, Internet banking, debit cards, credit cards UPI QR code and point of sale (PoS).

Other services include making applications for and onboarding of customers for identified retail, MSME or schematic loans.

How are DBUs different from Neo banks?

Currently, fintechs operating as Neo Banks offer digital banking services but they do so in partnership with non-banking financial companies (NBFCs). Some of the non-banks offering services in India are Jupiter, Fi Money, Niyo, Razorpay X.

What are the pros and cons of DBUs?

DBUs can enable last-mile financial inclusion as a lender can reach a wider customer base in a more cost-effective manner.

On the other hand, the ​​limitations of DBU include low public awareness and internet penetration in lower-tier cities. 

Further, challenges such as cyber security, data privacy and phishing need to be resolved if DBUs are to reach their full potential.

Source: This post is based on the article “Explained: What are Digital Banking Units, and what services will they provide?” published in Indian Express on 20th April 2022.