Growth, rising incomes and financial inclusion imperatives fuel a felt need.
State Bank of India, the country’s largest lender, plans to nearly treble its branch network to 50,000 by the end of the current decade, from 17,075 at present.
At present, SBI has 12,207 domestic and 141 overseas branches, while the remaining ones belong to its six associate banks. There are 250 million accounts. The bank has plans to merge the associate banks with itself over the next few years.
Only Industrial and Commercial Bank of China, which had 16,386 branches at the end of 2008 and provided services to 190 million personal clients and 3.1 million corporate clients, matches SBI’s network.
The branch expansion plan is a reversal of SBI’s strategy at the start of the decade. Like most banks then, SBI was focusing on its existing network and generating more business from it. Besides, technology was expected to help banks reach more customers. But, over the past few years, banks did a U-turn and started opening branches in large numbers again. What helped was permission from the government to recruit employees.
This year alone, SBI opened 975 branches; it intends to add another 1,000 during 2010-11. At the start of the decade, SBI had around 9,100 branches. In recent months, the Reserve Bank of India also liberalised its branch licensing norms, allowing domestic banks to freely open branches in towns with a population less than 50,000.
The bank’s chairman O P Bhatt said the plan to open 33,000 branches was not ambitious. Despite the thrust on financial inclusion by banks, a large number of villages still did not have any banking service and the branches will meet a part of the new client base that is coming. “So, you need more cover areas which are bankable,” he said.
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According to RBI, even assuming that a person has only one account in India, only 59 per cent of adults have bank accounts.
Besides financial inclusion, high economic growth in this decade will require expansion in banking activity. The annual growth in loan books could be 20-25 per cent a year to support economic growth of 8-9 per cent yearly. “At this rate, the business could double every three years,” Bhatt said.
The outstanding credit of the SBI group grew 4.5 times in seven years, to Rs 750,362 crore at the end of March 2009. The business could grow in size by at least eight times in 10 years, the chairman said.
Rising income levels of the middle class, which need varied financial services like credit and wealth management, along with big-ticket project and infrastructure finance, will throw up large businesses on the lending side.
A State Bank executive said getting low-cost and long-tenure deposits is a crucial driver to opening branches in rural areas. “The brand name and perception of strong government support gives us an edge in raising funds in the hinterland,” he said.
The ambitious branch growth intent gains significance in the backdrop of a brainstorming session in Goa a few weeks earlier, where nearly 50 top SBI executives participated in the review of the course traversed so far and indulged in crystal-ball gazing for the next three to five years.