20/06/2017
RBI latest Guidelines on Branch expansion and outreach among underserved areas for Banks
Banking outlets – Final Guidelines from RBI
Nothing enlightens a poor rural area citizen than a sign indicating the functioning of a branch of a bank. I had gone recently to a poor village in Villupuram District in Tamilnadu which had a well laid road, reasonably well constructed houses and no bank branch. You may be surprised to know that many residents have their presence in almost all states in India and invariably at least one person from family living in USA/UK/Australia or other countries. What does it indicate?
Simply stated in a layman’s language, the nation failed to recognize the village as a bankable center. A small post office working on part time basis, however, meets some of the banking needs, though no equivalence to any bank branch.
For a city dweller or a resident of a metropolitan city like Chennai, the bank branches are sometimes even an eyesore. The economic reality or utility of the rural areas, particularly, in consumer goods, actually pushed the institutions like RBI or the commercial banks to fasten the necessity of opening the rural bank branches more amenable to the common man. The present government under the leadership of the Prime Minister with direct crediting of funds to the rural poor also hastened the process. With one stroke, he got millions of bank accounts for the rural poor opened even without any balance.
In this context, the writer is happy to explain the latest RBI’s “Rationalization of Branch Authorization Policy – Revision of Guidelines”, a simple stroke of revised policies on branch expansion, as one can name it. The writer being a retired bank executive in a leading nationalized bank which has been heralding rural revolution through its policies is equally proud to explain the simple facts.
Reserve Bank of India vide its circular dated May 18, 2017 has issued detailed guidelines on branch expansion of banks.
1. Scope
These guidelines are applicable to all domestic Scheduled Commercial Banks (excluding Regional Rural Banks), Small Finance Banks, Payment Banks, and Local Area Banks. These are effective from May 18, 2017.
A banking outlet is defined for any of the above-mentioned banks is a fixed-point service delivery unit manned by its staff or its Business correspondents where deposits, encashment of checks or lending operations are undertaken for a minimum of 4 hours per day and for a minimum of 5 days a week. The branch has to clearly indicate its time of operation, its controlling offices telephone, address and the working hours clearly. No disruption in working hours is expected.
Any outlet providing lesser hours or days of operation, naturally, qualifies as a part-time banking unit.
Unbanked Rural Center
The above term is defined as a rural (Tier 5 and 6) center that does not have a CBS-Enabled banking outlet of any of the above-mentioned banks. ATMs, E-Lobbies, Bunch note acceptor machines, cash deposit Centre’s, or Mobile branches are not treated as banking outlets.
An earth quaking statement of opening of new bank branches is given below:
RBI has permitted all domestic Scheduled Commercial Banks (except RRBs) to open, unless otherwise specifically restricted, Banking Outlets in Tier 1 or Tier 6 centers without getting necessary permission from RBI in each case. So far, RBI had the power to permit license for each center thereby, increasing bureaucratic control over the banks. The tiers of population are defined as per the Census 2011. The tier-wise and population group-wise centers is provided as Annexure 1 of the circular.
Conditions to be met for exercising above power
At least 25% of the total number of banking outlets opened during a financial year has to be in unbanked rural centers already defined earlier. Opening of par-time banking outlet has been dealt with as per computations shown in the circular. Further, the following additional facts may be helpful:
- A banking outlet/ part-time banking outlet opened in any Tier 3to 6 center of North Eastern States/ Sikkim as well as in any Tier 3-6 center of Left-wing Extremism (LWE) districts notified by the central government (list also given as Annex 3)
- A full-fledged brick and mortar branch which is already being served by a fixed-point Banking Correspondent outlet would also be reckoned for computing compliance with 25% norm.
- A banking outlet to be opened by a payment bank in a rural (5 and 6 tier) center which is being served by the banking outlet of a Payment Bank would also be eligible for computing compliance with 25% norm.
- Time limit of one year for opening a banking outlet in a URC is one year. Penal restrictions may be imposed in case of failure to adhere to compliance with 25% norm.
- However, excess opening of banking outlets in URC can be carried forward for two years.
- State Level Banker Committees are expected to play a proactive role in identifying a URC.
Merger/ Closure/ Shifting of banking outlets
Banks have general powers to close, shift or merge existing branches except rural or sole semi-urban outlets. Any rural outlet would, however, need the approval of DCC/ DLRC authorities for closure/ merger or shifting activities.
Merger/ Closure/ Shifting of banking outlets – Guidelines for banks which do not have general permission
The scheduled commercial banks under the above category would obtain Dept. of Banking Regulation for opening of their branches.
Small Finance Banks
The above category of banks are given a relaxation of 3 years from commencement of business to align their operations in tune with above guidelines, which is understandable keeping in view of their small structure and experimentation with Indian economy. Yes, it amply clear that at the end of 3 years they would have opened in URCs, at least 25% of their total banking outlets.
Manning of ATMs/E-kiosks
Keeping in view of reformist approach adopted by RBI, it is expectedly true that the banks can open onsite/ offsite Automated Teller Machines at centers/ places identified by them including SEZs. Also, they would not be counted among “banking outlets”.
Mobile Branches – Extension to all tiers
Banks can easily open or operate mobile branches at all tiers without any restriction. This would facilitate easy extension of banking facilities to almost all residential areas and mobilize more business. Not many among the younger generation can recollect that RBI by movement of time, has to mellow down and allow natural banking instincts to grow rather than retard them. We, some of the experienced bankers, shudder to think those days when even saving fund deposits earnings were controlled by RBI since the rate of interest to be paid was invariably decided by them. Some of the staff of the nationalized banks even copied the language of the RBI circular while conveying the rate of interest to their branches.
Setting up of administrative/ back offices/ service branches/ call centers
Yes, the banks have the right to decide setting up of above offices at will. It is the fervent wish of the writer that while setting up these offices, cost benefit analysis of the employees must be kept in view and barest minimum staff must be maintained to avoid wastage of labor. With the advent of all types of marketing, man power may become replaceable and regular monitoring of cost has to be undertaken.
Role of Board of Directors
Financial inclusion being the overarching objective of banking expansion and in view of the operational flexibility being given to the banks, it is necessary that Boards of Banks would exercise their responsibility by having proper monitoring system of onsite and offsite of Banking outlet and also take it in real spirit.
(Writer’s view: Board of nationalized banks previously acted as mirror of the government and failed in their duties to say no to improper loan proposals and never considered banking units as money making units. It was considered as a social benefit to the underdeveloped state to generate jobs. Who would have thought that nationalized banks would become unviable units and white elephants for the central government? Also, the efficient functioning of private sector banks has attracted the best business to gravitate towards them, leaving many unviable ones for the public sector. However, the recent central government with establishment of new Board for monitoring of banks along with shifting of Managing directors on performance basis to lesser places of posting indicating the displeasure of the higher authorities has shown its real sense of business minded approach.)
Reporting requirements
Banks have been advised to furnish the information in terms of Proforma 1 (Annexure 6) on opening of new place of business i.e. branch/ office/ Non-administratively independent office and Proforma 2 (Annexure 7) on change in status – merger, conversion, closure, etc., to Dept. of Statistics and Information Management, Banking Statistics Division, Reserve Bank of India, Central office, Mumbai 400051.
Additional information for serious banking minded readers
Pages 11-46 contain several annexures and useful information for bankers who would actually handle the opening of new branches.
Annexure 1 – Details of tier-wise classification of centers based on population. It also defines a rural center, semi-urban center, urban center or metropolitan center.
Annexure 2 – Illustrations of calculation of part time banking unit
Annexure 3 – List of 106 LWE Districts under 10 states
Annexure 4 – Format for Annual Banking Outlet Expansion Program (ABOEP): Consolidated proposal
Annexure 5 – Form of application for permission to open a new place of business
Annexure 6 – Statement of new branch/Office/NAIO to be submitted by banks as and when opened/quarterly basis
Annexure 7 – Statement of change in status/Merger/Conversion/Closure etc. of existing branch/office/NAIO to be submitted to RBI as and when effected or on quarterly basis
Annexure 8 – Format for interim reporting to RBI (Quarterly basis)
Conclusion
Gone are the days when a rural village dweller has to beg the politician to get bank branches opened in their villages. In fact, in Punjab National Bank, in olden days, the retiring Chairman had the option of opening a new branch nearer to his place of final settlement, in case, other economic factors were as per RBI directives. A branch office near my place in New Delhi was opened nearly in 1980s in this process only. Times have changed and economy has brought so many unconventional institutions like payment banks, Micro Managing Finance institutions and other credit lending private institutions which has made RBI proactive in allowing Scheduled commercial banks/ Payment Banks, Small Finance Banks or Local Area Banks to open new Banking outlet and issue new guidelines. My earlier stint in a nationalized bank under socialist regime in 1975 in branch expansion department also forced me to have a window of this development. It is expected to help any business man to plan whether new banking outlets can be got opened to widen his business. For others, some knowledge of core banking would increase their horizon.
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About the author
HIMANSHU TIWARI
CHARTERED ACCOUNTANT
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