 "Banks to continue investing in physical branches; limits in digitisation")
Despite India's rapid digital transformation, more banks are now focusing on expanding their brick-and-mortar presence across the country, according to The Economic Times (ET). Widespread digitisation in banking has enabled even the remotest villages to connect to the internet, which initially raised questions about the future of traditional branch banking. However, contrary to expectations, banks recognise the enduring importance of physical branches in banking, especially for deposit mobilisation.
Despite the competition for savers' funds, fueled by the rise of mutual funds and other alternative investment options, banks increasingly realise the need to establish a visible presence in areas where they seek to attract customers. This has led to the addition of over 3,500 branches by the top four private banks in the past two years alone.
While digital transactions are preferred for routine banking activities, complex transactions such as investments, overseas fund transfers, and loans often necessitate in-person visits to branches.
HDFC Bank, which recently merged with its home-financier parent, has emerged as a leader in expanding its branch network to address the temporary assets-liability mismatch resulting from the merger. The bank network expanded by 27 per cent last year. Meanwhile, ICICI Bank branches went up eight per cent last year, and Axis Bank went up three per cent.
Even with the shift towards digital banking, a March 2023 survey by Accenture revealed that a significant proportion of customers still rely on branches for balance queries and prefer face-to-face interactions for certain banking needs.
Branches represent a substantial investment for banks due to high rental and maintenance costs. However, they also serve as platforms for financial education and cross-selling opportunities, particularly in rural and semi-urban areas. According to ET, HDFC Bank branches break even to their costs within two years, with 90 per cent of branches breaking even in 20-21 months.
Aside from expanding a bank and gaining customer trust, physical banks also serve as a tool for financial literacy. This can be seen through cross-selling mutual funds and insurance and even explaining various schemes and programmes relevant to the customer.