What slowdown? Banks on a recruitment spree

Most banks appear to be on branch expansion overdrive

At a time when most other industries fear a grim future and possible recruitment freezes, banks in India appear to be on a branch expansion and recruitment spree. Most banks in the country, specifically public sector banks and small, private sector banks appear to be on a branch expansion overdrive. For large public sector banks, the expansion appears to be an effort to achieve financial inclusion by having branches in un-banked regions while for smaller banks it seems to be an attempt to move out of their region of origin and acquire a more pan-India presence. But why do banks want to expand at a time when there are signs of a possible slowdown and when costs are going up. “Any bank branch takes about two years to contribute to the growth of the bank and if banks want to be prepared for a higher rate of growth they need to start setting up new branches now. Also branch expansion is not as big a burden when compared to the benefit that they acquire. What is more important is, if the business from the new branch will help meet their capital adequacy ratio requirements,” says Vaibhav Agarwal, banking analyst at Angel Broking. The Reserve Bank of India (RBI) in its branch expansion regulation mandated that at least 25 per cent of the new branches opened by public sector banks should be in rural areas. For public sector banks, apart from meeting financial inclusion targets, the need to catch up in terms of branch addition is also another reason to expand aggressively. Over the past few years, public sector banks spent most of their time and funds on establishing core banking solutions in their branches. Now that the systems are in place, these banks had to do some catching up in terms of branch expansion, experts say. “Since most of these branches are in rural and semi-urban regions, they help the banks tap low cost deposits, while the urban branches could be used for lending services,” points out Rikesh Parikh, banking analyst at Motilal Oswal Securities. Small private sector banks too expand to shed their image of being a ‘regional bank’ and acquire a more pan-India presence. This explains why a Kumbakonam-based City Union Bank wants to expand to Varanasi and Khammam and Thrissur-based Dhanlaxmi Bank wants to expand to Ghaziabad and Bareilly.

WSJ