What is Branch Banking?

March 15, 2015 June 28, 2017

Branch Banking is still an integral part of Indian banking system as most Indians still believe in cash transactions and prefer to visit banks in person for routine banking operations. Bank branches are the face of the banks where customers can visit and talk to the officials for getting better insights into new policies, investment schemes, other banking services etc. On top of it, the personal touch in every service leaves a great impact on the minds of customers. However, banking in India has changed its facets and ways of doing business over the years especially after the onslaught of technology and its manifestations. People have started to drift towards latest modes of banking like e-banking, mobile-banking etc. but the acceptance percentage is low as compared to other countries. These innovations hold promising future and branches have to continually evolve to remain relevant in coming times.

Definition of Branch Banking

Branch Banking has been defined under the provisions of Section 23 of the Banking Regulation Act, 1949 that banks can either open new branches or shift the location of existing branches. The banks have to seek a prior approval of RBI to open a new branch in India or abroad or in the same city or village where a branch already operates. RBI will grant such permission after it is satisfied about the financial condition of the demanding bank, robustness of its management, capital structure and general public interest behind such a move.

The Banking Regulations Act, 1949, defines a ‘branch’ or ‘branch office’ of a banking company as a place where bank deposits are received, cheques cashed, money lent, any or all banking services are carried out. These exclude the bank call centres as they are typically calling facilities which do not have any customer interaction. A branch will include a full-fledged specialised branch, a satellite or mobile office, an extension counter, administrative office, control office, service branch, credit card centre etc.

Relevance of Branch Banking

Branch banking has a lot of importance in India as it makes banking possible for people living in rural and remote areas. This is a true source of inclusive growth. The success of Pradhan Mantri Jan Dhan Yojana has been possible due to extensive branch networks of various banks. Branch banking makes management more responsive and efficient over centralised banking operations. Also, the risk is well spread across the branches and no single office has to suffer. This helps banks to offer more securities and investment options to its customers. Also, due to the wide geographic spread, a broader customer base, deposits used in one branch can be used profitably used as loans or investments in other branches. This type of banking system can easily reach people in backward areas. There are some negative points too which branch system faces like delays in decision-making due to limited powers of branches, influenced by local political leaders or administration etc.