Marking India’s 75th year of independence, Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman and former Reserve Bank of India (RBI) governor Shaktikanta Das had inaugurated, with much fanfare, 75 digital banking units (DBUs), across 75 remote districts, in October 2022.

“We have given top priority to ensure that banking services reach the last mile,” Modi had said. He described it as a huge departure from a time when the poor were expected to knock on the doors of banks, to the banks arriving at their doorstep.

However, more than two years on, lenders have made little to no progress in taking these units across the country.

The RBI defines a DBU as a specialised fixed-point business unit/ hub housing certain minimum digital infrastructure for delivering digital banking products and services, as well as servicing existing financial products and services digitally, in both self-service and assisted mode.

The units are expected to offer customers a cost-effective and convenient access to products and services, through an enhanced digital experience in an efficient, paperless, and secured and connected environment, while ensuring that most services are available in self-service mode at all time, all year.

Hurried launch

According to a senior banker, lenders were given 45 days to set up an entire DBU. They were given specific instructions on the locations for the new DBUs.

“The challenge is that some of these things cannot be directed from the top. It cannot be the same model for every bank everywhere,” the banker said.

“DBUs were opened at the places they (the government) identified, and the messaging to us was that it should be opened in semi-urban and rural areas. They mandated having a certain number of machines at the DBU. But if I need only two machines at a specific DBU location to serve the customers effectively, why do I need to use five? Due to this reason, the concept did not take off as expected. Some DBUs at our bank are doing well, but the launch was in a hurry,” the banker added.

Another senior banker said the launch of DBUs has not picked pace for any lender.

According to sources, the country’s largest lender, State Bank of India (SBI), has opened 12 DBUs; Bank of Baroda has launched 18 DBUs; and Punjab National Bank operates eight DBUs currently. Among large private lenders, HDFC Bank and ICICI Bank have four DBUs each, while Axis Bank has three DBUs.

Most, if not all, of these DBUs were inaugurated by the Prime Minister in 2022 itself.

“Just because a digital branch has been set up, it doesn’t mean that it will generate business. It doesn’t work that way. Branch banking requires a lot of blocking and tackling, and being on the field physically. I am not saying that digital acquisition of customers is not possible. Some customers are willing to take this route. But in tier-II, tier-III cities and smaller towns, you need to make your presence felt. Just putting up a branch that looks completely digitalised does not necessarily lead to accretion of large deposits,” the banker added.

Strict guidelines

Despite the RBI allowing the launch of DBUs in tier-I to tier-VI cities without its approval, bankers say they are not keen on opening such units due to the heavy operating costs involved.

According to RBI norms, each DBU shall be housed distinctly from an existing banking outlet, with separate entry and exit points. They will have formats and designs appropriate for digital banking users. Digital banking users in non-metro areas, bankers say, are fewer. Having separate entry and exit provisions, away from an existing branch or banking outlet, further increases the operating cost for banks.

For front-end services at a DBU, the RBI has asked each bank to choose suitable smart equipment, such as interactive teller machines, interactive bankers, service terminals, teller and cash recyclers, interactive digital walls, document uploading devices, self-service card issuance devices, video KYC apparatus, and a secured and connected environment for the use of customers’ own device for digital banking, among others.

The DBU should also have video call facilities. These facilities can be in-sourced or outsourced, provided there is compliance with regulatory guidelines.

However, bankers say that making these services available in remote areas, as also maintaining them, involves heavy operational cost.

“The establishment of DBUs should be part of the digital banking strategy of the bank. The operational, governance and administrative structure of the DBUs will be aligned with that of the digital banking segment of the bank. However, in order to accelerate digital banking initiatives, each DBU will be headed by a sufficiently senior and experienced executive of the bank, preferably Scale III or above for PSBs, or equivalent grades for other banks, who can be designated as the chief operating officer (COO) of the DBU,” the RBI’s norms say.

Essentially, the RBI mandates that DBUs must provide digital account opening, fixed deposit, and recurring deposit services, among others. They should also enable applications for, and onboarding of customers for retail, MSME (micro, small and medium enterprises), and schematic loans.

It said cash withdrawal and cash deposit must be done only through ATM and cash deposit machines, respectively, and no physical cash acceptance or disbursal will be allowed across counters — a service that is typically sought after by many users, especially senior citizens.

While DBUs can deepen financial inclusion in the remotest parts of the country, bankers say the logistics and operating cost involved in setting up and maintaining them makes it harder for them to add new DBUs.

More Like This

Published on May 11, 2025