Finance blogBanking

Government directs Indian banks to open 15,000 new branches in FY20-21

government-directs-indian-banks-to-open-15,000-new-branches-in-fy20-21.jpg

Government directs Indian banks to open 15,000 new branches in FY20-21

The Indian banking sector has been in overdrive over the last few months, particularly after several repo rate cuts by the RBI (Reserve Bank of India) and a subsequent cut in lending rates across most banks. Additionally, the Government is striving to scale up the banking network in the country. The Central Government has directed Indian banks to open 15,000 new branches in FY2020-21. As of the month of March last year, the country possessed in excess of 120,000 branches and a little more than 2 lakh ATMs according to reports.

Out of this tally, close to 35,649 branches are present in rural zones. The Central Government has already provided a location list to lenders across both private and public sectors according to reports.

Key aspects worth noting

Several large lenders including SBI (State Bank of India), HDFC Bank, Bank of Baroda (BoB) and ICICI Bank will be setting up approximately 14-15,000 branches in 2020 for scaling up operations and reaching out better to those who are unbanked and in urgent need of proper banking services based on the directive issued by the Government. The Union Finance Ministry has already issued its directive, whereby a branch should be opened within a radius of 15 kilometers from a village where banking facilities are unavailable at the moment.

The entire exercise of opening branches will be based on the locations that the Union Finance Ministry has provided. Bigger public sector banks such as SBI (State Bank of India) will have to open close to 1,500 branches, private counterparts have been directed to establish at least 600 or 700 branches each. The list covers several Panchayat areas and villages where bank branches are absent. The Government is striving to offer credit at cheaper rates to those who are unbanked till now and hence this massive banking expansion exercise.

The RBI has previously released information related to overall financial inclusion in the country which covers outlets of regional banks in rural areas. This indicates that the tally touched more than 52,000 by end-March, 2019 which indicates expansion of only 3% as compared to the year 2018. For most banks, branches in metro cities achieve profitability within 2-3 years while the break-even period for a branch in a rural zone is usually 4-5 years. However, with the RBI (Reserve Bank of India) easing up regulations for opening of branches and their overall functioning, there are close to 5.5 lakh branch-less outlets across rural zones. 91% is the overall business correspondent share across banking outlets in these zones.

According to reports, the Government is aiming at banks reaching out to unbanked zones, substituting formal credit for informal credit and lowering rates of borrowing for rural residents who are still reliant on money-lenders. Some officials have acknowledged that it is feasible for banks to have branches remaining open for a minimum of 4 hours every day for 5 days every week. These could be manned by officials of the bank or business correspondents. The RBI also allowed the establishment of banking outlets or mini branches in India in the year 2017 without any permissions required on a case-to-case basis.

 

Share this post

Comments

comments