Private bank branches bloom as PSBs throttle back
Premium- From Q4FY17 till September this year, private banks raised their branch count by over 7,000
- Public sector banks saw branch network start to decline after peaking in March quarter of 2017
MUMBAI : India’s private banks are rushing in to fill the void left by the shrinking branch network of state-owned banks that had to rationalize presence and avoid overlaps caused by a spate of mergers.
Public sector banks saw their network of branches start to decline after peaking in the March quarter of 2017 and by September this year, they recorded a net decline of 4,389 branches. Private sector banks, on the other hand, have increased their count by over 7,000 in the same period, showed data from the Reserve Bank of India (RBI). As of 30 September, public sector banks had 85,166 branches, while private lenders had 34,516 branches. IDBI Bank has been excluded from this count because it earlier used to be a public sector bank and was, in January 2019, classified as a private sector lender after insurance behemoth Life Insurance Corp. Of India (LIC) acquired a majority stake.
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“Public sector banks have not been opening many new branches in this phase of consolidation, and at a time when loan growth is low, they did not want to increase operating expenditure," said Asutosh Mishra, head of research (institutional equity) at Ashika Stock Broking.
According to Mishra, many private banks took over some of the vacant real estate, left behind by the public sector lenders as it saves them the cost to modify an empty space into one where a branch can operate since those modifications are already in place. “Private banks still require their franchisee to grow significantly and branch presence helps in that, despite the advent of digital banking," he added.
Experts, however, pointed out that private banks still have a lot of catching up to do in branch numbers, given that public sector banks have more than twice the number of branches. But they said the opportunity is significant and branch expansion is an area of focus.
Surinder Chawla, head of branch banking at private lender RBL Bank, said there are multiple reasons why the private sector is adding branches.
Firstly, the bigger private sector banks continue to add 200-400 branches individually every year and that kind of opportunity exists in India. Second, IDFC First Bank and Bandhan Bank are the two new private banks, and both have really expanded pretty fast in the last four years.
“Last, smaller banks like us are still finding the need to cover more geography in the country. We are expanding irrespective of whether there are other banks or not because we are unrepresented. For instance, we recently went to Patna, Bhubaneswar, Guwahati and Siliguri, where we were not there earlier. RBL Bank is likely to add about 80 branches this year and 100 or so next year," Chawla said.
To be sure, this trend does not quite counter the belief that branches will gradually shrink as digital banking takes over. Chawla said that, at least in India, a physical branch is still an important aspect of customer trust. “It is a big confidence booster that a branch exists, and I know whom to approach in case of any issue. Banking is about trust, public money and therefore the physical presence of that institution gives confidence to customers," he said.
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Others said that apart from merger-related closures, several loss-making branches across the country have been closed. Devidas Tuljapurkar, convener of the United Forum of Bank Unions, said banks had to rationalize loss-making branches as part of their agreement with the government on capital infusion.
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