According to Kotak Securities report Indian banks’ branch expansion drive will not help ramp up deposit mobilisation, as deposits and loans will continue to be concentrated in urban markets
Indian banks' branch expansion drive, which has almost reached pre-crisis levels, will not help ramp up deposit mobilisation, as deposits and loans will continue to be concentrated in urban markets, according to an industry study. The study was conducted by Kotak Securities.
"We believe the current focus on branch expansion is unlikely to benefit banks, as 50% of the business is concentrated in the top 10 centres (12% of overall branches) and 70% of the business comes from the top 50 centres, which is 22% of total branches," said the report. It added that the trend has not changed in the top 10-20 centres over the past few years.
"Branch expansion in these centres has been higher than average with broad positive metrics (growth on deposits and loans per branch). However, we should expect to see a slowdown if the current pace of expansion continues," it said. As per the report, better targeting and products will result in further shift in the Casa (current and savings accounts) share to private banks. Nearly all private sector lenders have gained a larger market share in Casa deposits over their public sector counterparts due to their focus on high growth segments and better products and service delivery execution, besides the higher growth of low cost deposits in urban centres, it added.
However, the report said large PSU banks like SBI, Bank of Baroda and Union Bank have improved their market share through a national presence and strong growth of current account deposits in the Western region. But the loss of market share is visible in the case of Punjab National Bank, due to the competition it faces on branch expansion in the North, and in South-based PSU banks, despite healthy Casa deposit growth, the report noted.
The report further said that banks, especially large private ones, which have been growing at 20% annually over the past few years, are likely to go slow on their expansion plans due to the new guidelines that require 25% of new branches to be opened in unbanked areas. The study expected these banks to open low-cost branches and shift their focus to improved productivity levels and expanding their reach with customers through alternate channels and NBFC/business correspondents.