FinMin pushes PSBs to expand branches amid private sector competition

Amid rising competition from private and small finance banks, PSBs have been asked to scale up physical infrastructure and cover over 200 unbanked population clusters

The Union finance ministry (FinMin) has asked public sector banks (PSBs) to scout for potential locations and open new branches amid growing competition from private banks, according to a senior government official.

 

“PSBs have been asked to compete with the aggressive branch expansion by private sector banks and small finance banks (SFBs). PSBs need to scout for potential areas and open new branches,” the official said on condition of anonymity.

 

During 2024-25 (FY25), till December 31, 2024, PSBs opened a total of 1,391 new branches, comprising 271 in metropolitan areas, 311 in urban areas, 539 in semi-urban areas, and 270 in rural regions. In comparison, private banks led with a total of 1,552 new branches, including 545 in metropolitan, 466 in urban, 318 in semi-urban, and 223 in rural locations. Regional rural banks (RRBs) opened a modest 61 branches, while SFBs also demonstrated aggressive expansion by opening 1,272 new branches across various regions.

 

The official further added that the finance ministry has acknowledged the progress made by PSBs in enhancing their digital capabilities. “However, banks have been clearly advised to not lose focus on physical expansion. A strong physical presence helps build personal connections with customers, enhances service delivery, and plays a crucial role in mobilising deposits,” the official said.

 

Earlier in June, Union Finance Minister Nirmala Sitharaman had said India’s financial future will be “phygital”— a blend of physical and digital services.

 

“It is important to leverage the reach of technology as well as maintain physical presence to serve customers better and build trust over time,” Sitharaman had said at the Digital Payments Awards 2025, held in New Delhi.

 

During FY25 till December 31, 2024, major private sector banks continued their aggressive branch expansion across all regions. HDFC Bank led the pack by opening a total of 421 new branches, followed by Axis Bank with 337 new branches. Kotak Mahindra Bank opened 134 branches, across locations.

 

The source further said that the finance ministry has told PSBs to augment banking infrastructure in the northeastern region having lower population density. 

 

The total business of PSBs rose from ₹203 trillion in FY23 to ₹251 trillion in FY25. During the same period, the net non-performing assets (NPAs) of the PSBs declined sharply from 1.24 per cent to 0.52 per cent. Net profit increased from ₹1.04 trillion to ₹1.78 trillion, and dividend payouts grew from ₹20,964 crore to ₹34,990 crore during the same period.