On the banking correspondent auctions…

for some time now, ET has been reporting on a worrying move by the philosopher kings in the department of financial services (the offshoot of the finance ministry tasked with managing the banking sector) to overhaul the banking correspondent (BC) model.

well, the auctions to appoint common BCs for all public sector banks in a “cluster” (one large or a couple of smaller states clumped together = one cluster) are underway. and the bids are frankly astonishing. after complaining for years that a 2% fee to deliver payments, etc, is not enough, companies are bidding ridiculously low amounts – the fourth auction was won by a company that bid 0.11% (or 11 paise to deliver to hundred rupees).

till now, i had been filing online stories (only for the ET website) after each reverse auction. the story out today, however, is written for the paper. it takes stocks of how the auctions are going and flags the fact that companies, about to be entrusted with a lot of public money for welfare, are bidding oddly low amounts.

this raises three possibilities. either, the economics of the BC model have changed entirely in the new approach (perhaps due to the fact that a monopoly is being created). two, companies are bidding out of desperation and they will fail to deliver. or, three, they are going all out to win contracts figuring they will work out ways to make it viable later (the time-honoured strategy of contract renegotiation after winning the bid, perhaps).

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