The Karnataka-headquartered banks are planning to open new branches in the northern parts of the country to increase their current account, savings account (CASA) ratio in the overall deposit book. This is expected to push up the profitability of these banks.
While Vijaya Bank has plans to open around 75 branches in the northern region, Corporation Bank plans to launch a substantial percentage of its 200 new branches during the present fiscal in this region.
“We have got licenses to open 53 branches, of which 52 will be opened in north India. Further, the 25 branches will be opened in tier-II and tier-III cities that is expected to give significant upside to the low cost deposit base,” Albert Tauro, chairman and managing director of Vijaya Bank said.
Recently, Vijaya Bank has been asked by the government to increase its CASA ratio and to bring it to 30 per cent of its total resource base. The CASA ratio of the bank stood at 24.6 per cent by March, 2010.
The present branch expansion plan will also help boost the net interest margin (NIM) of the bank, another top executive said. NIM of Vijaya Bank was at 2.89 per cent by June, 2010 and the bank aims to achieve a NIM of 3 per cent by the end of present fiscal.
Similarly, Corporation Bank, another mid-size public lender is also betting big on branch expansion in the northern region.
“We do have a plan to open 150-200 branches in the present fiscal and have a broader outlook to open around 1,000 branches in the next five years,” Asit Paul, executive director of Corporation Bank, said.
Of the branch strength of 1,159 by June 2010 of the bank, only 13 per cent of the branches are in the northern region. As per vision document of the bank, the bank plans to open a minimum of 15 per cent of new branches in Uttar Pradesh, Madhya Pradesh, Chhattishgarh and Uttaranchal to expand its pan-India presence.
Another top executive of the bank said that new branches in northern region, especially in tier-II and tier-III cities, would increase the CASA ratio with a perceptible impact on NIM.
By June-end, the bank had a CASA ratio of 24 per cent and the bank aims to increase it to 31 per cent in the present fiscal. Further, the bank aims to achieve a NIM of 3 per cent by the end of this fiscal from 2.41per cent last fiscal.
The bank is also betting big on salary and student accounts to push low cost deposit base for the bank.
Similarly, the third largest public sector bank in India, Canara Bank is also expanding its footprint in the north and north east region.
The public lender had earlier said that the bank would open 200 branches during the present fiscal with special focus on states like Gujarat, Rajasthan and north eastern states.
Referring to the branch expansion, an analyst in a Mumbai-based brokerage firm said, “As per the Reserve Bank of India document, both north and north-eastern region of the country have a huge CASA potential, though these regions have low appetite for credit. So, most south-based banks are aggressive with their branch expansion in this region.”
Further, these banks have no option than to expand in these underbanked region as they face increasing competition in the southern part of the country, he added.
He, however, said that reflection of these branch expansion on CASA ratio and NIMs would not be visible till FY12.
“Increasing the CASA ratio is a long-drawn process. So, CASA and NIMs will not increase this fiscal and will have some reflection on the balancesheet in FY12,” he added.
