MUMBAI: A study published by the State Bank of India (SBI) has said that business correspondents, who are channels for most Jan Dhan account transactions, are overcharging public sector banks (PSBs) by routing transactions in a manner aimed at maximising fees. The report has called for changes in norms for business correspondents to promote financial inclusion. Business correspondents connect to banking systems using handheld devices that are similar to credit card-swipe machines. These machines are capable of using Aadhaar biometric or debit cards for authorisation. If the business correspondent provides service to customers of a bank using an application of the same bank, the transaction is considered as an ‘on us’ transaction by the bank. If the service is provided to a customer using an application of another bank, the transaction becomes an ‘off us’ for the bank where the customer holds their account and the bank ends up paying an interchange fee. The report, authored by SBI group’s chief economic adviser Soumya Kanti Ghosh, has called upon the RBI to disincentivise business correspondents who are converting ‘on us’ transactions of public sector banks into ‘off us’ ones on the Aadhaar-enabled Payment System (AePS) to earn interchange fee and more commission. Business correspondents have taken centre stage in rural banking after the RBI’s new branch authorisation policy of 2017 recognised them as providing service for a minimum of four hours a day for five days a week as banking outlets. Their number has risen from 34,000 in 2010 to 12.4 lakh in December 2020. They have been the cornerstone of servicing the 43.7 crore Jan Dhan accounts, 78% of which are with public sector banks. According to the report, the problem lies in the flexibility given to business correspondents concerning interoperability of transactions, which has allowed them to game the system. “We estimate that the PSBs could be paying Rs 600-700 crore per annum as interchange fee. This money could be used by PSBs to further financial inclusion more holistically,” said Ghosh. The report has suggested that the AePS should work like the point-of-sale (PoS) terminal used by merchants. Converse to what is happening among business correspondents, in PoS machines the acquiring bank pays a fee to the issuing bank. “Alternatively, there could be rationalisation in interchange fee as there is no level playing field in infrastructure provided by all banks,” the report said.