Private banks pip state-run peers in opening new branches

The acquisitions made by ICICI Bank and HDFC Bank also contributed to their network expansion

The uncertain macroeconomic environment has failed to deter private sector banks from expanding their branch networks in the country. In fact, the number of branches opened by large government-owned banks, excluding State Bank of India (SBI), in the last five years is less than the number of those opened by ICICI Bank and HDFC Bank.

State-run banks, however, continue to top the list in terms of the total number of branches.

The financial inclusion agenda, coupled with growing business opportunities in non-metro centres, has led to private lenders increasing their branch count aggressively across the country. The introduction of low-cost branches has also encouraged network expansion.

Between March 2008 and March 2013, the network of ICICI Bank, India’s largest private sector lender, increased by 1,838 branches. During the same period, HDFC Bank grew its branch count by 2,301. In comparison, state-run lenders Punjab National Bank (PNB) and Bank of Baroda opened 1,610 and 1,483 new branches, respectively.

Acquisitions by ICICI Bank and HDFC Bank also contributed to their network expansion. For instance, ICICI Bank added about 450 branches in 2010-11 by acquiring Bank of Rajasthan, while HDFC Bank secured about 400 branches when it bought Centurion Bank of Punjab in 2007-08. The uncertain economic environment, however, appears to have made public sector banks cautious. Many, including PNB, Bank of Baroda and Bank of India, opened fewer branches in 2012-13 than a year earlier. Some such as Oriental Bank of Commerce have even indicated they would go slow on network expansion this financial year.

Private lenders do not seem to have any such reservations. HDFC Bank has said it would add at least 300 branches to its existing network of 3,119 branches by the end of this financial year. The bank has already set up 57 new branches in the first three months of 2013-14.

The growing wealth in rural India has prompted many private banks to explore business opportunities in these regions. For instance, the share of semi-urban and rural branches to Axis Bank’s network rose to 45 per cent at the end of March 2013 from 40 per cent at the end of March 2011. ICICI Bank set up 348 branches in 2012-13, of which 152 were in rural areas. “We will further increase our commitment to rural India by increasing our branch footprint and business correspondent network,” Rajiv Sabharwal, executive director at ICICI Bank, had said in the bank’s annual report for 2012-13.

Bankers say the introduction of low-cost micro branches has allowed lenders to expand their reach without incurring significant expenses. “Retail banking is gaining importance in the current environment. For exploiting opportunities in this segment, banks need branches. Micro and small branches provide a way to increase presence without incurring huge costs. This model is ideal for rural and un-banked centres,” said a senior executive of a large private bank.

HDFC Bank opened 193 micro branches last financial year. Primarily, these are two-member branches in rural markets, with low operational costs.

Among government-owned banks, SBI, India’s largest lender, continues to aggressively expand its network. It opened 4,630 branches between March 2008 and March 2013, the most by any bank in the country.

However, despite efforts to expand bank branch networks, the penetration of banking services continues to remain low in India. According to World Bank, India has less than seven branches per 1,00,000 people, compared with 30 branches in Organisation for Economic Co-operation and Development countries.