Puduvayal, a small town 85 km from Madurai in Tamil Nadu, was in the news last Sunday. The State Bank of India (SBI), the country's largest bank, opened its 10,000th branch there. Puduvayal is located in the Chettinad region of Sivaganga in Tamil Nadu, which is the Lok Sabha constituency of Finance Minister P Chidambaram. Mr Chidambaram inaugurated the SBI branch and announced that with the opening of the Puduvayal branch, SBI had become only the second bank in the world to have more than 10,000 branches, after China's ICBC. Opening new branches figures prominently in SBI's plans for the future. A press release issued in connection with the Puduvayal function mentioned that SBI had plans to open 2,000 more branches in the next two years "" an acceleration of the pace of expansion, since in the last two years it opened only 800 branches. Clearly, this is one way to achieve financial inclusion. The Reserve Bank of India has been exhorting all banks to adopt means by which access to institutional credit improves. Indeed, access to non-institutional credit (non-banking agencies, including money-lenders) has been rising since 1991, making financial inclusion an even bigger challenge. | |
| The question is whether opening new bank branches is the right way to go, or the issue to focus on. As the apex bank has argued on several occasions, the central issue revolves around making easier the ordinary citizen's access to banking channels. With technology making rapid strides, substantially altering the way banking is done across the country, it is decidedly easier and more cost-effective to reach a larger number of people through automated teller machines (ATMs), internet banking and transacting through mobile telephones, using technology that exists and which is being tested. Also, the new private sector banks have shown how it is possible to create value quickly and productively "" in the process showing up almost all state-owned banks as laggards. Admittedly, the relatively unbanked areas will not be suitable for either ATMs or internet banking, and the adoption of new technologies therefore has to go hand in hand with extending the branch network. What SBI can be faulted on is not for its branch expansion strategy "" an average of 15 branches per district cannot be considered excessive by any yardstick, especially when one considers the inevitable skew in favour of urban centres, which would leave the country's 600 rural districts with perhaps fewer than 10 branches each, on average. The issue, rather, is the failure to adopt new technologies and new business strategies with the same zeal and conviction that is being brought to branch expansion "" especially when the new branches will take a while before they become profitable. |
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| In this context, it is worth doing a comparison in terms of assets, net profits and other operating parameters, between SBI and ICICI Bank, which is the second largest bank in the country and a little less than two-thirds the size of SBI. ICICI's staff strength and the number of its bank branches are much smaller than those of the public sector giant. More branches will increase SBI's staff strength (which it has reduced in recent years through successive voluntary retirement schemes) and its financial liabilities in the short run, without the guarantee that they will help it stay ahead of the competition. |
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