Bharat may cease to be a drag on banks in 5 yrs
Public sector lenders to become profitable in a five-year time frame
By : DC Correspondent
Update: 2014-11-18 07:10 GMT
MUMBAI: Rating agency CRISIL on Monday said that the increasing economies of scale and usage of low cost channels such as business correspondents (BC) would help public sector lenders, who are currently incurring losses in their rural operations, to become profitable over a five year time frame.
“Indications are the situation is changing already. In the last five years, business per branch in the rural areas has grown at a compounded annual growth rate of seven per cent, despite the overall branch network growing at nine per cent annually. The economies of scale are set to increase further in the years to come,” the rating agency said.
While the Pradhan Mantri Jan Dhan Yojana could pose challenges for banks in the short term, the rating agency believes that it would augment business per branch in the longer run.
According to it, the banks are also bringing down operating expenditure and expanding rur-al reach by experimenting with smaller branches and increasingly using BCs, CRISIL said.
“Improvement in technology and favourable regulations have made it possible for banks to service their rural customers through BCs at about a fifteenth of the cost of a rural brick and mortar branch, which is about Rs 100-110 per transaction. We expect 25-30 per cent of liability-side transactions in rural areas to be routed through business correspondents by 2018-19, up from 8-13 per cent currently,” said Prasad Koparkar, senior director, industry and customised research, CRISIL Research.