Banks reach smaller cities, open 2,722 new branches in 5 months

Banks reach smaller cities, open 2,722 new branches in 5 months
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First Published: Thu, Jun 07 2007. 01 04 AM IST
Updated: Thu, Jun 07 2007. 01 04 AM IST
Indian banks have gone on a new branch binge.
Since the beginning of 2007, banks have been opening branches at a staggering pace of 18 a day. In the first five months of the year, 2,722 branches have been added to the existing network of close to 73,000 branches. All of last year, banks opened just 1,196 new branches.
ICICI Bank Ltd alone has opened 273 branches this year. While it may not seem like a drop in the overall scenario of bricks and mortar branches, India’s second-largest bank only has 945 branches. That means that 28% of the 12-year-old bank’s branches have become operational in the past five months. HDFC Bank Ltd has opened 101 branches and 70 of these have been in the tier-II and tier-III cities. Kotak Mahindra Bank Ltd has opened 25 branches this year.
With urban bank customers opting for Internet banking and ATMs, and the cities fairly saturated with branches, banks are reaching out to the rural markets and small cities. Some 130 of ICICI Bank’s new branches are in rural areas.
The shift in focus is also in keeping with the Reserve Bank of India’s (RBI) emphasis on the “financial sector inclusion”. RBI wants commercial banks to reach out to the unbanked pockets of India. On an average, one Indian bank branch caters to about 16,000 people. “In certain urban pockets, the number could be as low as 3,000, while in rural India, there are branches catering to 25,000 people,” said a public-sector bank official.
RBI has identified 391 districts across India with population per branch more than the national average of 16,000.
K.V.S. Manian, group head (branch banking and retail liabilities) at Kotak Mahindra Bank, said banks were opening branches in semi-urban and rural locations following the RBI directive. “Today’s second-rung cities are metros of tomorrow,” he said.
“The challenge for the banks is to cater to the unbanked population while remaining profitable. It is imperative for banks such as ours to grow our business and reach out to new markets,” said an HDFC Bank official.
While public-sector banks have by far opened the lion’s share of new branches, it is still a relatively small increase. Only the State Bank of India and its affiliates have some 14,000 branches. In contrast, the total branches of all private banks add up to under 5,000.
Among foreign banks, Citi has recently received RBI’s nod for opening three non-metro branches. Foreign banks have been pushing for new branches for long now, but they are restricted by the banking regulator’s branch licensing policy. RBI issues, on an average, 18 licences a year to foreign banks against the country’s trade commitments to World Trade Organization of issuing 12 branch licences. According to statistics available with RBI, aggregate deposits in rural areas grew by 16.8% for the year ended December 2006. In contrast, the deposit base of semi-urban areas grew 18.3% and that of metros 26.5% during the same period.
“The thrust is on rural India. However, one of the reasons behind the sudden burst of branch opening activities was the shift in RBI’s policy vis-a-vis some of the banks that were banned from opening new branches for their role in a capital market-related scam,” said a banker with a Mumbai based private bank.
RBI refused permission to certain banks, including ICICI Bank and HDFC Bank, in 2005 and 2006 to open new branches after they were found not following the “know your customer” norms.
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First Published: Thu, Jun 07 2007. 01 04 AM IST
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