Opening branches may be made easier for Indian banks

The Reserve Bank of India (RBI) has kicked off a review of the branch licensing norm, but any liberalisation is unlikely to cover foreign banks operating in the country.

Banking sources said the central bank had set up an internal working group headed by a chief general manager-rank official for preparing a roadmap for easing up the branch licensing policy.

The group has been mandated to draft guidelines which would be put up for discussion. Simultaneously, the Indian Banks’ Association, the lobby representing the banks, has also sought comments from chief executives of banks. The move follows an announcement by RBI Governor D Subbarao in the Annual Policy Statement. The central bank, which has hitherto maintained a tight leash on issuing branch licences and opening automated teller machines (ATMs), has already started letting go of control. In April, it had said that banks were free to set up ATMs.

In case of branches, the present policy requires banks to put in an annual request for opening new branches and only after RBI authorisation, the new outlets can be opened.

According to the sources, even if banks might not need prior approval from the central bank for opening branches in future, it could stipulate the proportion of branches that should be opened in under-banked and rural areas.

At present, a bank that intends to open, say, 10 branches in under-banked areas, is given permission to open a higher number of branches.

According to an official in the planning department of a large state-run bank, in case a bank fails to open 75 per cent of the new branches, for which regulatory approval has been received, then the central bank holds back further branch authorisation.

Similarly, banks which are seen as weak are denied fresh branch licences. A case in point is Development Credit Bank, which is reporting losses for the last few quarters on account of high bad debt.