RBI relaxes branch expansion policy for banks

20 Sep 2013

1

RBI has already done away with restrictions on branch expansion by well-managed banks in Tier 2 to Tier 6 centres, subject to fulfilling certain inclusion criteria in underserved areas in proportion to their expansion in urban areas.

To enhance the penetration of banking in rural and semi-urban areas, RBI had permitted domestic scheduled commercial banks (excluding RRBs), to open branches in Tier 2 to Tier 6 centres and in the rural, semi-urban and urban centres in North-Eastern states and Sikkim without seeking RBI's prior permission in each case.

RBI has now extended the relaxed branch authorisation policy to Tier I centres if the bank has at least 25 per cent of the total number of branches opened during the financial year (excluding entitlement for branches in Tier 1 centres given by way of incentive), in unbanked rural (Tier 5 and Tier 6) centres, ie, centres which do not have a brick and mortar structure of any scheduled commercial bank for customer based banking transactions.

b)   The total number of branches opened in Tier 1 centres during the financial year (excluding entitlement for branches in Tier 1 centres given by way of incentive as stated in para 4 below) cannot exceed the total number of branches opened in Tier 2 to 6 centres and all centres in the North Eastern States and Sikkim.

Accordingly, RBI has allowed banks to open an equal number of branches in Tier 1 centres, over and above their eligibility, in proportion to the number of  branches opened in Tier 2 to Tier 6 centres of underbanked districts of underbanked states (excluding such of the rural branches opened in unbanked rural centres that may be located in the underbanked districts of underbanked states in compliance with the prescribed requirement).

In case a bank is unable to open all the branches it is eligible for in Tier 1 centres, RBI said, it may carry-over these branches during subsequent two years.

Banks, however, have to ensure that all branches opened during a financial year are in compliance with the norms as stipulated.

Banks, which for some reason are unable to meet their obligations of opening branches in Tier 2 to 6 centres in aggregate, or in unbanked rural centres (Tiers 5 to 6 centres) during the financial year, must necessarily rectify the shortfall in the next financial year.

This general permission would be subject to compliance with the prescribed parameters as well as regulatory/supervisory comfort in respect of the individual banks, RBI said, adding that it has the option to withhold permission to banks which fail to meet the necessary criteria as also impose  penal measures on banks which fail to meet the obligations.

RBI said it would soon issue detailed guidelines regarding reporting requirements, including illustrations on the stipulations.

The measures would benefit the public from increased competition between banks, and banks would benefit from more freedom in decision making, RBI said.

RBI said it would shortly issue necessary circular to completely free bank branching for domestic scheduled commercial banks in every part
of the country.

''No longer will a well-run scheduled domestic commercial bank have to approach the RBI for permission to open a branch. We will, of course, require banks to fulfil certain inclusion criteria in underserved areas in proportion to their expansion in urban areas, and we will restrain improperly managed banks from expanding until they convince supervisors of their stability. But branching will be free for all scheduled domestic commercial banks except the poorly managed,'' RBI said.

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