Money & Banking

Push for banks to expand in rural areas

A.J. Vinayak Mangalore | Updated on May 03, 2011 Published on May 03, 2011

The RBI has asked banks to open a fourth of its new branches in un-banked rural areas having population of below 10,000 people.

These branches will be opened in tier-5 and tier-6 centres.

(The July 1, 2010 master circular on Branch Authorisation of RBI has classified those centres having a population between 5,000 and 9,999 as tier-5 and those below 5,000 people as tier-6 centres).

Bankers feel this new requirement will add to their costs, although there are opportunities too.

Establish cost

On an average, starting a branch in a rural area would incur an establishment cost of Rs 10-12 lakh for a branch with a minimum of two staff members to manage the branch. Factors such as the economic-generation activities in the village and the manpower employed in the branch can play a major role in determining its break-even point of a branch in a village.

Bankers who have worked in rural branches feel that higher dependence on deposit accounts brings down rate of profit earning, whereas the lending activities help them touch profitability.

While welcoming the RBI move to focus on more brick-and-mortar model for expanding branch network in un-banked areas, they say that the branch must focus on income generation activities and mobilise accounts associated with those activities.

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Published on May 03, 2011
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