Digital Banking Units: Progress & Challenges | 14 May 2025

Source: BL 

Why in News? 

Digital Banking Units (DBUs), launched in 2022 to extend digital financial services to the remotest parts of the country, have seen limited expansion due to challenges like high operational costs, low digital adoption etc. raising questions about their effectiveness and long-term sustainability. 

What is a Digital Banking Units (DBUs)? 

• About: A DBUs is a specialised fixed point business unit or hub, housing a certain minimum digital infrastructure for delivering digital banking products entirely through self-service, anytime. 
  • They were launched in 2022, across 75 remote districts of India, commemorating India’s 75th year of Independence. 
  • DBUs are set up by scheduled commercial banks (SCBs) (excluding Regional Rural Banks (RRBs), payment banks, and local area banks) with digital banking experience, without prior Reserve Bank of India (RBI) approval in Tier 1 to Tier 6 centres, except where specifically restricted. 
• Benefits: It aims to boost financial inclusion by enhancing access to digital banking for underserved and unbanked populations. 
• Services Offered: ATMs, cash deposit machines, passbook and internet kiosks, bill payments, and account opening via e- KYC (Know Your Customer) 
• RBI Mandate for DBUs: The RBI mandates that DBUs must be physically separate from existing branches, with distinct entry and exit points.  
  • They should be designed to serve digital users, featuring advanced technologies like Interactive Teller Machines, Service Terminals, and Cash Recyclers. 
  • Additionally, each DBU must be overseen by a senior, experienced executive. 

What are the Challenges Faced by Digital Banking Units (DBUs)? 

• Ineffective Planning:  At the time of implementation of DBUs, banks were given just 45 days to set them up at centrally chosen locations, without considering local needs, digital readiness, or regional differences in demand and banking habits, which impacted the initiative's effectiveness. 
• High Operational Costs: RBI requires DBUs to be separate from branches with costly infrastructure like interactive teller machines and video KYC. In low-traffic areas, high costs deter banks from expanding DBUs. 
• Low Digital & Financial Literacy: Limited digital skills, especially among senior citizens, and the lack of cash counters in tier-II, tier-III towns, and rural areas hinder DBU effectiveness, limiting financial inclusion. 
• Connectivity & Strategic Integration Issues: Remote areas lack stable internet and power, disrupting DBU operations. 

What Steps Should be Taken to Enhance the Effectiveness of Digital Banking Units? 

• Decentralised, Demand-Based Expansion:  Instead of a top-down rollout, DBUs should be established based on local demand, digital literacy levels, and banking penetration.  
  • A decentralised, data-driven model can ensure sustainability and avoid underutilisation. 
• Strengthening Digital Literacy Programs: Leverage the Pradhan Mantri Gramin Digital Saksharta Abhiyan (PMGDISHA), aimed at digitally empowering rural citizens, to improve digital literacy in areas with low engagement. 
  • Banks should collaborate with local governments and community organizations to conduct training sessions for citizens, especially senior citizens and women, on using digital services effectively. 
• Infrastructure Support: Invest in improved connectivity infrastructure, especially in remote and underserved areas.  
  • The BharatNet Project can play a crucial role in ensuring that stable internet access is available to remote areas. 
  • Establish backup power solutions like solar power to mitigate frequent power outages that affect DBU operations. 
• Enhancing Customer Support: DBUs should include human support for digital onboarding, problem resolution, and financial advice to enhance customer engagement. 
  • Additionally, offering multilingual interfaces  and local language assistance can improve comfort and accessibility in diverse regions. 
• Focus on Financial Products and Services: DBUs should ensure easy access to Pradhan Mantri Suraksha Bima Yojana (PMSBY), Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), and Atal Pension Yojana (APY), particularly in rural areas where insurance penetration is low. 
  • Facilitate quick access to digital loans, such as those under PM Mudra Yojana, e-Mudra, and other MSME schemes.