Private banks increasing rural spread: study

Private sector banks have been steadily increasing the number of rural branches as per the policy directive of the Reserve Bank of India (RBI) of opening new branches in unbanked or underbanked areas, according to a study published by Edelweiss research.

About 50-65 per cent of the new branches opened by top private lenders such as ICICI Bank, Axis Bank, HDFC Bank and Yes Bank over the past five were in unbanked and underbanked areas, Edelweiss found on an analysis of their FY14 annual reports.

In FY14, Axis Bank opened 455 branches, 298 of which were in unbanked areas. Among private sector banks, Axis Bank has 18 per cent of its branches in unbanked areas - the highest among large private banks - while ICICI Bank and HDFC Bank have 10-12 per cent.

The Reserve Bank has asked banks to locate at least 25 per cent of new branches in unbanked rural centres (Tier-V and VI) for a three-year period between 2013 and 2016. RBI also offers incentives for rural banking through provision of credit for the branches opened in excess of the 25 per cent of new branches in a year.

''Over the past five years, private banks have made a focused beeline for rural areas, in line with the RBI mandate and also because of the growth opportunities arising due to increasing prosperity in the rural economy,'' Edelweiss research said in its recent note.

''We believe considerable potential for business exists at these centres and it also serves our objective of providing banking facilities to segments of our population who do not have access to these at present,'' the top management has said in the report. In FY14, the number of branches in unbanked areas for HDFC Bank stood at 230 (67 per cent of new branches) and 317 (49 per cent) for ICICI Bank.

The Edelweiss report said close to 75 per cent of Axis Bank's rural branches are in unbanked areas against 50 per cent for ICICI Bank and HDFC Bank.

For Axis Bank, semi-urban and rural markets have been growing at a pace faster than the larger centres and the bank proposes to focus on equipping the branches to become single-point interface for all services with empowered staff and extensive reach through effective partners and agents.

ICICI Bank, on the other hand, plans to increasingly use technology to expand rural presence. Its plans for financial inclusion include 'Branch on Wheels', a mobile-van-based branch that aims at providing banking services to a cluster of remote unbanked villages.

HDFC Bank said its rural banking model ensures cost-effectiveness through one-, two- or three-officer branches in remote locations. However, it said, rural branches take time to break even due to lack of business opportunities.

For IDBI Bank, the main attraction is the minimum number of people needed to run rural branches. A rural branch needed a minimum of three people, whereas eight employees are required for a bank's operation in a tier-1 city.

Against this, in FY14, the State Bank of India (SBI) opened 1,053 branches, 57 per cent of which were in rural and semi-urban areas, the Edelweiss study found.