Small is beautiful: Bankers go the Nano way

After Ratan Tata, now the bankers have started appreciating the beauty of small things.

With the cost of setting up branches escalating and bankers realising technology is not sufficient to substitute brick and mortar branches, they have started thinking of low-cost models that will not only serve to local needs but also reduce break-even time by a third.

If the idea crystallises, then Union Bank of India, would be the first Indian bank to roll out a low-cost branch - a Nano equivalent of Ratan Tata’s people’s car.

The cost for opening a branch in metropolitan areas is Rs 40 lakh and in urban areas Rs 30 lakh. In semi-urban and rural areas it costs Rs 20 lakh and Rs 10 lakh, respectively. On an average, a branch takes 18 months to break-even.

The Union Bank plans to narrow the break-even time to 12 months through these low-cost branches. A low-cost branch will have a smaller area with a few staff and will have a character to suit the local needs. Union Bank is in the process of appointing a consultant for the purpose.

The government-run bank has been aggressive in opening branches with over 550 branches in the last three years, of which 247 were opened in 2008-09. This year, the bank plans to open 500 more branches if it can recruit enough skilled hands to man those branches.

As on March 31, 2009 commercial banks have 64,608 branches in the country, with public sector banks having the lion’s share with 55,438 branches, including those of the State Bank of India and its six associate banks. SBI, alone had 11,472 branches as on March 2009 and in 2009-10 it added another 1,000 branches to its kitty.

However, the country’s largest lender had admitted that expenses incurred for opening branches and automated teller machines has been a drag to its bottomline for the fourth quarter. SBI has spent Rs 100 crore in Q4 for opening branches and ATMs. This was one of the reason for the 32 per cent decline in its net profit.

As a consequence, SBI has decided to cut down its branch-expansion plan to half in 2010-11 and has capped its operating expense growth at 5 per cent.

The growth rate of branches in 2008-09 fell to 5.7 per cent from 7.2 per cent in the previous year. Though the maximum number of bank branches are still to be found in rural areas, the share of rural branches to the total count has fallen in recent years while that of urban and metropolitan branches is witnessing a rise. A major part of business for the banks is earned by the top hundred centres, mostly situated in metropolitan and urban areas.