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Private Banks Expand Physical Branches to reach more customers


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Private sector banks are continuing to invest in physical branch expansion as a means of connecting with a wider range of depositors, even as digital banking gains momentum. Several private sector banks in India, including HDFC Bank, Kotak Mahindra Bank, RBL Bank, Federal Bank, City Union Bank, and AU Small Finance Bank, have announced plans to open more physical branches this year compared to the previous year.

For instance, HDFC Bank, the country’s largest private sector lender, plans to open around 1,000 branches in the financial year 2024-25. This comes after the bank opened 1,481 branches in the previous year. HDFC Bank’s Managing Director and CEO, Sashidhar Jagdishan, emphasized the success of their branch strategy, stating that they had seen significant per-branch revenue last year and believe there is still room for expansion in India.

Similarly, Kotak Mahindra Bank intends to add approximately 200 branches this fiscal year, up from the 150 branches added in the previous year. Virat Diwanji, Group President and Head of Consumer Banking at Kotak Mahindra Bank, highlighted that the majority of their savings account business is conducted digitally, but they still see value in expanding their physical branch network.

Other banks, such as RBL Bank, also have plans for branch expansion. RBL Bank aims to open around 70-75 branches in the current fiscal year, with a focus on metro and urban areas. This expansion is expected to contribute to an 18-20 percent growth in their overall deposit base.

Despite the growing popularity of digital banking channels, private sector banks in India are investing in physical branches to reach a wider customer base. State-run banks currently have more branches than private sector banks, with a total of 84,404 branches as of March 2023, compared to 41,258 branches for private sector banks and 783 branches for foreign banks, according to RBI data.

One reason for this branch expansion is the faster growth of credit compared to deposits. A recent report by CareEdge highlighted that deposits grew at a slower pace than credit growth, raising challenges for banks to attract more deposits. The Reserve Bank of India (RBI) has also expressed concerns about the high credit-deposit (CD) ratio in the banking industry, which has put pressure on banks’ net interest margins.

Experts suggest that banks must attract more deposits to align with their high credit growth. Failure to do so may result in banks having to reduce their credit growth. Despite these challenges, private sector banks are committed to expanding their physical presence alongside their digital banking initiatives.

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