Branch banking is out-of-date
By Neelima Shankar
Sep 19, 2008
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Massive strides in technology accompanied by evolving consumer needs have changed the way Indian banks serve their urban customers. The regular visits to the local bank branch and personal acquaintance with its manager has given way to anytime and anywhere banking for routine transactions.

Country's largest bank, State Bank of India (SBI) aims to shift 50% of its transactions to alternative channels of banking apart from branch banking. For this purpose, the bank is likely to spend Rs 3,000 crore in information technology in the coming two years. It plans to expand its internet banking, mobile banking and ATM systems in order to reach to its target.

This step is expected to prove as a blessing because the transaction costs for the bank will decline. It will also reduce the burden of the employees of over 10, 000 SBI branches across the globe. A senior official from the bank said that transaction cost at an ATM and through Internet are much lower compared to costs incurred at a branch. It costs only Rs 18 and Rs 10 per transaction at an ATM and internet respectively. While a transaction cost involved with a branch is Rs 50.

Presently, there are over 6 billion annual transactions under the core banking channel and only 25% or 1.5 billion transactions go through alternative channels like ATMs. In the coming two years, SBI expects the number of transactions to go up to 10 billion and it aims to ensure that customers use alternative channels for 50% or 5 billion of the transactions.

This step is likely to improve efficiency along with savings as the bank is not planning to close any of its branches or reduce the workforce. It will encourage the bank's customer base to have access to any service without walking to the branch office.

R P Sinha, SBI deputy managing director in-charge of IT said, "With increased pressure on profit margins, enhancement of IT-enabled banking will play a major role in reducing the operational cost of the public sector banks."

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