Foreign banks to move to small towns

Some foreign banks in India are likely to broad base their branch network in the next financial year to include smaller towns.

Jaspal S Bindra, general manager, south Asia, Standard Chartered Bank, said, "We have applied for branch licences in semi-urban and rural areas, which will fall under the category of under banked locations during 2006-07."

At present, Standard Chartered Bank has 80 branches across 31 cities, making it the largest foreign bank in the country. There are 24 foreign banks operating in the country.

The move follows the Reserve Bank of India's notification in August 2005 on branch expansion in under-banked areas and setting up of ATMs.

Banks will have to provide branch expansion plan on a district basis, giving the number of branches proposed to be opened in metropolitan, urban, semi-urban and rural areas.

The central bank, on February 28, 2005, unveiled a roadmap for foreign banks in India. Flexibility for foreign banks to go beyond the existing WTO commitment of India  - of 12 branches in a year - and preference for branch expansion in under-banked areas were some of the key points of the roadmap.

Nicholas Winsor, head-personal financial services, HSBC India, said, "We will be setting up branches in underbanked locations, and are committed to expanding our business into new geographies and customer segments in 2006".

Bindra said the reason for Standard Chartered's penetration into smaller towns was that the bank would have a first mover advantage in such regions. Agra is considered to be one such under-banked area and there are many such locations that need to be tapped, he added.

Another reason for the rural binge is that foreign banks would be able to meet the norms on priority sector lending, added Bindra.

Winsor adds, "Many HSBC customers reside in and travel to metros and would expect us to support them in these locations as economic activity increases."

In its latest application for new branch licences, HSBC has listed more than 10 new cities or towns where it is not present today, including some underbanked locations.

HSBC has 42 branches in India, wherein 10 branches are in urban locations and the rest in metropolitan areas. It also has 164 ATMs in India, of which 103 are at off-branch locations.

Foreign banks may establish a presence by way of setting up a wholly owned subsidiary or conversion of existing branches into a wholly owned subsidiary in the first phase extending from March 2005 to 2009.