Branchless Banking: The New Trend , By: Dr.N.K.Thingalaya

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There was a time, mostly in the 70s, when public sector banks were announcing their massive branch expansion programmes and taking pride in opening large number ofbranches in different states simultaneously. In the initial years of nationalisation of banks, they were flooded with mass petitions signed by villagers along with therecommendations of the political bosses requesting for branches to be opened in remote villages unheard of. Newspapers carried with some regularity, photos of branch opening by politicians, local administrators and bank executives. Ribbon-cutting was gradually replaced by lighting the lamp. Distribution of deposit receipts to the rural customers in glittering ceremonies became an added attraction.

Pressurised Branch Expansion:

Public sector banks were under great pressure to open rural branches in the districtsallotted to them under the Lead Bank Scheme. In many cases, in the lead districts, the designated lead banks were having no presence. But they initiated the survey of thedistricts, identifying unbanked areas for branch opening. The branch licensing policy of the Reserve Bank of India was modulated to compel banks to open four rural branches in order to get licences for opening one urban or metropolitan branch. In December 1969,

there were only 1443 branches operating in rural areas, constituting 17 percent of the total branch net work. Their number increased to 24,577 during the next 15 years thanks

to the prodding. Perhaps, but for the regimentation of branch expansion, banks would not

have opened rural branches in such large numbers. For facilitating the brisk branch expansion process, the regulator had also streamlined the licensing procedure in the 70s. After the identification of unbanked rural centres by the lead banks, special meetings of bankers were held under the aegis of the Department of Banking Operations and Development at the state level. An officer from the regional offices of DBOD would also participate in the meeting, where the identified centres would be allotted to banks interested in opening their branches. Once the allocations are made, licences would be granted by the Reserve Bank without delay. Within a short time frame, banks were then expected to open the branches. I remember the experiences of attending one such meeting in Hyderabad, for the allotment of unbanked centres in Andhra Pradesh. In the prolonged meeting held in the crowded board room of State Bank of Hyderabad, there were about a dozen identified centres in Nellore district, which remained un-allotted. Unhappy with task remaining incomplete, the senior executive from the central office literally shouted at the chairman of Pinakini Gramin Bank for not volunteering to opt for these centres. Meeting concluded with these centres allotted to the gramin bank. Branches were opened by the bank in due course. It may also be added to the credit of public sector banks that hardly any rural branch was closed; some of them were relocated to better locations in the 90s.

Shift in Emphasis:

With the introduction of financial sector reforms, the scene of activities shifted from rural branches to urban branches since the 90s. Liberalisation of branch licensing policy did not insist upon the new generation banks to open rural branches. They were permitted to operate in metropolitan centres without the hassles of rural banking. They started competing with each other in making their presence felt by opening branches in strategic locations in cities and metropolitan centres. During the last 16 years, the total number of branches opened by them is only 2497. Out of them 130 branches - less than 5 percent -are located in rural areas as on March 2007. These banks were reluctant even to extend their activities to less developed states for a long time. Banks have travelled a long way since then. The merger and acquisition process saw some of them acquiring rural presence. Computer-savvy as these banks were, they have changed the concept of branches as business channels. Brick and mortar branches are substituted by computerized click branches. For improving the accessibility to customers.heir reliance is not on the traditional branches. E-banking is being popularized and outsourcing of agents is increasingly being used for reaching out the a growing number of customers. The latest trend is to go for cost effective branchless banking.

The Substitution Process:

Installation of ATMs, specially those located off-site, is the beginning of branchless banking. Initially, these gadgets housed in small kiosks, were used as cash dispensing machines, accessible 24 hours throughout the year. Cost of the installation and its maintenance being very high, banks were slow in investing in them. But when the foreign

banks started installing them in many of the metropolitan centres, domestic banks could not remain comfortable without the new facility. Foreign banks, having the experience of

managing ATMs for quite some time, were installing them in cities, where they did not have branches. For them ATMs were substitutes for regular branches, as the licences for the latter were not readily available, because of the reciprocal arrangements in vogue.The new generation banks copied them and started installing more ATMs than opening branches. A majority of their ATMs are on off-site locations. ICICI Bank Ltd has the largest number of ATMs-3335 and the number of branches is only 703. The pattern is the same for all private sector banks of the new generation. Old private sector banks and the public sector banks are yet to follow this pattern. The single exception is that of Corporation Bank, which has more ATMs (929) than branches (884). With the ATMs equipped to many other operations besides cash dispensation, they are emerging as a substitute for the traditional type of bank branches. Crediting deposits by cash or by cheque, depositing cheques or drafts for collection, making investments in mutual funds or repaying the credit card bills and booking on-line railway tickets are some of functions ATMs can handle at present.

Branchless Banking:

An innovation in branchless banking is attempted by one of the public sector banks by appointing a business correspondent in a selected village who deals with customers of the bank using smart cards. Soorinje is a small village like any other village in Dakshina Kannada district in Karnataka, situated in the command area of Thadambail branch of Corporation Bank. The branch is at a distance of 6 km from the village. The business correspondent is a young housewife, matriculate and president of Dhanalakshmi PragathiBandhu Self Help Group. Her home is the virtual branch. There is no sign board outside and nor a cash counter inside. A screen-printed wall paper reads: Smt. Shobha N is the business correspondent of the Bank under CorpAccess. She has a small gadget called integra, developed by a software company in Bangalore, installed by the Bank, costing not more than Rs.22, 000. Simplicity of operations is its hall mark. It identifies the finger prints of the customer after her smart card is read by it. Since the opening of this branchless bank about three months ago, 262 smart cards are given to the residents of the village, who are the customers of its base branch. The card contains the photo and the

distinct customer identification number. The cardholder can deposit, pay loan instalments or withdraw cash up to Rs.2000 at a time. She can also get a print out indicating the balance in her account. The lifeless machine talks to her in Kannada, assuring her that her transaction is properly executed. No slips to be filled in, no signatures to be identified and no waiting. The service is available throughout the day. The business correspondent personally goes to the branch to credit the excess cash in the evening. She transmits the details of daily transactions to the controlling centre, which instantaneously credits the accounts of the customers in the base branch. For her services, she gets commission at the end of the month.A visit to this branchless bank was indeed a pleasant experience. Unbelievably, the cash transaction does not take more than two minutes. The business correspondent receives her customers as if these ladies walk in for a chat. She introduces Nagamma to us as a milk vendor, who has come to deposit Rs.100 to her account. Going to the branch by bus, she tells us, would cost her Rs.12 to and fro. The business correspondent inserts the smart card into the machine. Once it is accepted, she gently presses Nagamma’s thumb into the gadget kept on a bench. After the identification is completed, she types 100. The machine slowly repeats in Kannada “Rupees-one-hundred” and gives a print out. Before going back to its silent mode, it says, ‘Dhanyavaadagalu’ (Thanks, in Kannada). “In the branch, I do not think you get any Dhanyavaada after completing your cash transaction, do you?” I asked. Nagamma was smiling and Shobha was nodding in agreement.

Branches and ATMs of New Generation Banks: March 2007







ATMs (percentage)

ICICI Bank Ltd




Axis Bank Ltd




HDFC Bank Ltd




Centurion Bank of Punjab Ltd




IndusInd Bank Ltd




Kotak Mahindra Bank Ltd




Source: Report of Trend and Progress of Banks in India 2007
Reserve Bank of India 

Dr. N K Thingalaya

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