Banks on expansion spree as licensing norm eased

Source :Namrata Acharya / Kolkata May 25, 2010, 0:15 IST

Banks double expansion plans after RBI’s decision to allow them to open branches in Tier-III to VI cities without prior permission.

An easing of the requirement to take the Reserve Bank of India’s (RBI’s) permission for opening new bank branches has led to a substantial rise in their number.

In December 2009, RBI allowed domestic scheduled commercial banks (other than regional rural banks) to open branches in Tier-III to Tier-VI centres (with population up to 49,999) without prior permission. The impact: Banks plan to open almost double the number of branches this year, compared to last year.

Punjab National Bank plans to open close to 550 branches. It does not require a licence for about 440, as they are in areas with a population of less than 50,000, according to Chairman and Managing Director KR Kamath. Similarly, UCO Bank plans to open 140 branches this year, but needs licences for only 89. The bank was hoping this would raise its market share to at least 3 per cent from the existing 2.6 per cent, said Chairman and Managing Director SK Goel.

The country’s largest lender, State Bank of India (SBI), spent about Rs 100 crore to open 286 branches and 2,521 automated teller machines in the fourth quarter of the last financial year. IDBI Bank was planning to open about 300 branches this year, “substantially” higher than what it had done over the past few years, said an executive.

Clearly, a liberalised policy has led banks to opt for branch expansion in a bid to gain market share.

Rush to show size
Last year, the consolidation buzz triggered smaller banks to seek more licences. This is because the government suggested merger of smaller banks with bigger ones to make public sector banks more competitive. However, the smaller ones were not receptive. “There was a threat of amalgamation of banks till last year and smaller banks were in a rush to increase their balance sheet size,” said an executive of a public sector bank.

Even though the consolidation plan has been shelved, banks are seeking national presence. RBI’s change of rule is expected to help them increase their balance sheet size in a major way.

Moreover, while the cost of maintaining rural branches is low, banks are free to open rural branches in the vicinity of bigger towns or in an industrial cluster, making it a profitable proposition.

Allahabad Bank, essentially seen as an eastern India bank, is seeking a bigger share in southern and western states through aggressive branch expansion. “In some areas, RBI guidelines on opening branches might help, and we will be looking at opportunities in such areas,” said Executive Director D Sarkar. The bank has a licence for 69 branches, much higher than in the preceding years.

Likewise, western India-focused Bank of Maharashtra has embarked upon aggressive branch expansion. It plans to open about 75 new branches this year, against 45 last year. It is also looking at a presence in eastern states. “We are now aggressive in expanding branch network to make the bank fairly representative. We are trying to broadbase our customer base to include states in the northeast, Bihar and Jharkhand,” said Executive Director MG Sanghvi.

In December last year, RBI had also allowed banks to open branches in urban centres of Sikkim and the northeast without prior permission. “In the last one year, more branches have come up, but the definite impact of RBI’s policy will show up this year,” said United Bank of India’s Executive Director SL Bansal.