Top private banks scale up on branches, deposit mobilisation

Top Indian private lenders are going aggressive on branch expansion and are raking up retail deposits even as credit pick up remains slow.

HDFC Bank, ICICI Bank and Axis Bank have together added 799 new domestic branches in the first six months of current financial year and plan to add more going ahead.

Branch expansion by top private banks

This marks a reversal in the trend as the number of bank branches had started shrinking over the past few years as more and more customers moved to digital channels. However, regulatory norms require banks to maintain balance between urban and rural centres and customers prefer physical presence over digital in unbanked areas.

Axis Bank, which has been adding almost a hundred new branches each quarter for more than a year, opened 190 branches in the July-September period. For the bank, this was the highest quarterly addition in last six years.

"We will see accelerated branch opening in the third quarter as well," said Jairam Sridharan, group executive and chief financial officer, Axis Bank. In all, the lender plans to add 400 branches this year.

The bank saw 23 percent rise in total deposits. Moreover, the mix of deposits saw a change too as customers chased higher returns on fixed deposits in anticipation of reduction in interest rates going ahead.

Axis Bank's deposit growth was mostly led by increase in term deposits as compared to Current Account Savings Account (CASA) in the second quarter, said Sridharan.

He added that the bank will try and achieve current year's branch expansion target by December-end, so as to boost its CASA base. Currently, its share of the low-cost deposits stands at 41 percent of total deposits, lower as compared to 48 percent a year ago.

ICICI Bank plans to add 450 branches this year, of which it has already opened 346 new branches in the first half. Its deposits grew 25 percent in the second qaurter, mainly driven by 35 percent growth in term deposits. The bank's CASA growth slowed to 15 percent due to moderation in savings deposits.

"CASA has declined as fixed deposits are becoming a more important part of our funding strategies," said Rakesh Jha, chief financial officer, ICICI Bank.

While HDFC Bank occupies the top spot for highest number of branches among private lenders, the gap is quickly closing. In order to stay ahead of the competition, HDFC Bank added 211 new branches in the first six months this year.

HDFC Bank said that this is part of its plan to strengthen its network by 600-700 branches in all.

The bank's deposits grew 22.6 percent at the end of the second quarter, with term deposits growing at 28.3 percent in the same period.

"We are happy to have excess liquidity up to a certain point in time, which is reflected in the current margin. Our margins would’ve been higher by 15 basis points if we had slowed down on deposits. But from a medium to long term, this is the right way to do it, even if it shaves off a bit of margin," said Jimmy Tata, chief risk officer, HDFC Bank.

The bank’s Net Interest Margins (NIMs), that have largely remained in the tight range of 4.2-4.4 percent, slipped to the lower rung after more than a year.