Banks have finally realised that technology alone is not sufficient to renovate the old branches. With expansion of branch network as one of the prime goals, banks have started figuring out low cost models which would definitely cater to local needs but also reduce the break even time by a third.
If this idea takes solid shape then Union Bank of India would be the pioneer is bringing out a low cost branch in the country.
The set up cost for a branch is around Rs 40 lakh in metros, Rs 30 lakh in Tier I cities, Rs 20 lakh and Rs 10 lakh each for Tier II and rural areas respectively. Each branch takes 18 months on an average to break even.
With the aid of these low cost branches, Union Bank plans to shrink its break even time to 12 months. A typical low cost branch would have a relatively smaller floor area and fewer staff.
The bank has been amongst the most aggressive ones in setting up new branches in the last few years having over 550 branches in the last three years.
As on March 31, 2009 commercial banks have 64,608 branches in the country, with public sector banks having the biggest chunk of 55,438 branches, including those of the State Bank of India and its six it added another 1,000 branches to its kittyassociate banks. SBI, alone had 11,472 branches as on March 2009 and in 2009-10 another 1000 branches were added to it.
SBI admitted that this massive expansion spree has been a vital element for its profits dipping in Q4 of the last fiscal. This is why the bank has decided to cut down its branch expansion this fiscal.