Small finance banks expect relaxation in branch norms

Proposed banks want to work in hub-and-spoke model, with permission to convert some of offices into customer service centres

In accordance with the Reserve Bank of India's announcement to issue rationalisation of branch authorisation framework in its last monetary policy, the proposed small finance banks are expecting that they would be allowed to convert some of the existing branches into customer service centres.

The proposed banks have suggested the RBI that they should be allowed to follow hub-and spoke model of branch network, which was pioneered by Bandhan. The banks are expecting the guidelines to be issued this month.

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"One of our proposals to the RBI to allow us to convert some of our branches into customer service centre points, which would be connected to the main branch in the area. We are hoping that the RBI will issue a guideline in this regard over the next few days,'' said Samit Ghosh, managing director, Ujjivan.

The hub-and spoke model of Bandhan helped it integrate it microfinance business of around Rs 10000 crore with formal banking business. Under the model, at the lowest level are the credit officers in command of microfinance group. Through a layered hierarchy, the credit officers, who work as spokes, are connected to proper bank branches, which act as hubs.

"While the issue of branch policy does not come in way of commencing the operations, but we expect more clarity on aspects like the definition of doorstep banking and satellite offices from the RBI. It won't be feasible for us to convert all our offices into bank branches,'' said R Baskar Babu, co-founder and CEO of Suryoday Micro Finance.

The RBI in its last monetary policy had said, "Given that regulations are written in terms of branches, with a view to facilitating financial inclusion and providing flexibility on the choice of delivery channel, it is proposed to redefine branches and permissible methods of outreach keeping in mind the various attributes of the banks and the types of services that are sought to be provided."

According to RBI norms, small finance banks are to start operations by April 2017. In September 2015, the RBI had granted licences for 10 small finance banks. Earlier in August, the RBI had granted licences for 11 payment banks.

"If we are allowed to work in the hub-and spoke model, we would be able to save on lot of expenses. The minimum cost of putting up a bank branch would be close to Rs 15 lakh. However, we are allowed to convert some of our existing offices into customer service points, the cost will be much less, around Rs 3-4 lakh for each branch," said K Paul Thomas, chairman and managing director, ESAF Microfinance.