Banks are on aggressive expansion of their branches as RBI eased license norms

After RBI’s announcement that banks will be allowed to open branches in Tier-III to VI cities and they don’t require to take prior permission for the same, the banks are working on double expansion plans of their branches.

In fact there has been substantial rise in the number of bank branches this after RBI’s announcement.

Earlier in December 2009, RBI has allowed domestic scheduled commercial banks (other than regional rural banks) to open branches in Tier-III to Tier-VI centers (with population up to 49,999) without prior permission. As a result the banks planned to open almost double to open almost double the number of branches this year, as compared to last year.

Punjab National Bank is planning to open nearly 550 branches. Bank Chairman and Managing Director KR Kamath told for about 440 branches it will not require to take license as these branches will be opened in areas with a population of less than 50,000. Like wise, UCO bank is planning to open 140 branches this year, but will have to take licenses for only 89. Chairman and Managing Director of the bank SK Goel said, the opening of new branches might raise its market share to at least 3 per cent from the existing 2.6 per cent.

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

Thus RBI’s liberalized policy has led banks to go for branch expansion plans with a view to gain market share.

However, last year, the smaller banks set off to get more licenses due to consolidation as the government had suggested the merger of smaller banks with bigger in order to make public sector banks more competitive. Although, smaller banks were not ready for the same “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.

For the meantime the consolidation plan has been put on hold. It is believed RBI’s change of rule will help them in increasing their balance sheet size. Also, the cost of maintaining rural branches are low therefore banks are free to open branches in rural areas in the vicinity of bigger towns or in an industrial cluster, making it a profitable proposition.

Allahabad Bank is mainly located in eastern India bank, is planning to do aggressive branch expansion in southern and western states. “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 obtained license for 69 branches, much higher than in the preceding years.

On the other hand Bank of Maharashtra, mainly focused in western India has planned aggressive branch expansion. It has planned to open 75 new branches this year, against 45 last year. Its main focus will 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.

Last year, in December RBI has also allowed banks to open branches in urban centers of Sikkin 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.