'Learn from private banks'
Govt tells PSU banks to get business before opening urban branches
After warning public sector banks that urban branches not generating profits for a year may be ordered to be closed, the government is now advising them to do as private banks do while opening a new branch in these areas.
“PSU banks should learn from private banks. Instead of directly opening a branch and waiting for it to become profitable over the next few years, banks should first try to get some business in that area. If you can see not much business is coming in that area there is no need to invest your resources in setting up the infrastructure,” said a ministry official, who did not wish to be identified.
Banks, however, said it would not be viable for them to adopt this model, as the working environment and functioning of public sector banks was different from private banks.
“We have some obligations because of our legacy. We need to take everyone on board, the staff and the unions. Would the staff be comfortable operating from somewhere else till a proper place is provided for the branch? We need to answer all the problems,” said a banker on condition of anonymity.
The ministry official said if the banks knew a branch did not have the potential to get more business, they could also convert it into an ultra-small one.
“There can’t be two opinions that non-viable branches should be either made viable or closed. However, the gestation period might take a little longer at some locations.
Even if we get business in the first few months before opening the branch, there is no guarantee the branch would become profitable within a year or give good returns in the long run,” said a senior executive at a state-run bank.
Earlier this month, financial services secretary D K Mittal had said urban bank branches into losses for more than 12 months could be asked to relocate, scale down the staff or even close.
“This is a part of an ongoing dialogue with not only banks but insurance companies as well. If there are loss-making branches, then we need to re-look at why they are there. Ultimately, branches have been set up to earn,” Mittal had said.
There are about 90,000 bank branches in the country, of which 62,000 belong to public sector banks, while regional rural banks and private banks have set up about 15,700 and 11,600 branches. The rest belong to foreign banks. About 17,800 of all bank branches are in urban areas.