Pvt banks back to drawing board, expand branch network to boost efficiency

HDFC Bank added more than four times the number of branches in FY19 compared to the previous year

Adding physical bran­ches after a digital push may sound unlikely but private banks have expanded their branch networks in the past year and worked to improve their efficiency and profitability. 

This is in contrast to previous years when it was thought that digitisation would lead to fewer new branches being added. Instead of making br­an­ches obsolete, digitisation has given banks a chance to switch to more viable branch models. Private bank executives say branches play an important role in customer acquisition, loan origination, and deposit mobilisation.

“Branch banking is an integral part of our growth strategy and we believe that our branches will not only help in deposit mobilisation from new customers but also act as a core driver of our acquisition strategy across products,” said Axis Bank’s managing director and chief executive officer (MD & CEO) Amitabh Chaudhry.

HDFC Bank, the country’s largest private bank, added more than four times the number of branches in FY19 compared to the previous year. 

RBL Bank plans to use the capital it raises in the near future to accelerate investm­ent in its physical networks and expand footprint. It added more than twice the number of branches in FY19 over FY18. IndusInd Bank also added more branches during the year compared to the previous wh­ile Axis Bank also continued to add a significant number of branches in the past year.

ICICI Bank and YES Bank, however, only added a handful of branches in FY19 and the reason was that they were focused on making existing branches more efficient.

“Only 30 per cent of our branches are profitable. We want to get to a profitability level of about 80 per cent by 2023. By 2025, these branches should be fully profitable,” said YES Bank’s MD & CEO Ravneet Gill in his first quarterly call with analysts in April.

RBL Bank stressed the role of branches in building the liabilities side of the business since customers want the sec­urity of brick and mortar when handing over their money. 

The bank feels that the liabilities side requires more customer management, and stressed on the need to take customers through their entire life cycle by offering various products and services.

While online lending is gaining traction fast, loan sourcing through branches is also on the rise for some banks. The sourcing of retail loans through branches for Axis Bank has seen a significant improvement over the years and contributed 50 per cent to the overall sourcing in FY18 against 36 per cent in FY13.

Chaudhry said he expects branches to continue playing a crucial role in the new scheme of things. Axis Bank also sees merit in a calibrated growth of its branch network.

“Digital channels have increased the catchment area of banks. So, the number of branches we need to put within a certain locality has reduced. The size of branches has reduced by half and the cost of serving a customer has also gone down. This is owing to less infrastructure costs,” said Surinder Chawla, head, geography, branch and business banking, RBL Bank. Location is key and technology will aid in its selection. Axis Bank will also employ technology to keep new branches small and raise staff productivity.

Looking beyond digital push

• Private banks are restructuring branches and processes for greater efficiency and profitability
• While transactions go digital, branches remain important in value terms
• Loans move to digital mode but branches lead deposit mobilisation