The government needs to consider closing down loss-making branches of banks and insurance companies,financial services secretary DK Mittal said on Monday.
This could help the government optimise return on capital employed in the public sector banks. But such a strategy could adversely impact the financial inclusion plan,as commercial viability criteria may not strictly apply to bank branches in unbanked areas. The profitability factor,however,could be looked initially only for bank branches in urban areas.
Ultimately,branches have to be set up to earn profit. If they are loss-making for sometime,say 12 months,then,I think there is a case to re-look at it, Mittal said on the sidelines of a CII seminar.
There are about 87,000 branches of public sector banks across the country. Rising interest costs and bad loans have eaten into the profits of state-owned banks.
The government had recently pumped in Rs 7,900-crore capital into the countrys largest lender State Bank of India. As per a finance ministry panel report,the public sector banks would require capital of more than Rs 3.9 lakh crore for expansion purposes to meet the capital adequacy norms.
Even as the government has started a review of the bank branches,with a view to close down loss-making ones. It is ordering banks to open branches in the unbanked areas,which may not turn out to be commercially viable. The government,therefore,is suggesting banks not to open strictly brick-and-mortar branches in these areas and rather have bank presence through banking correspondents and use of technology.
The finance ministry aims to cover 73,000 unbanked habitations and provide them with banking facilities.
At present,a mere 5 per cent of the countrys total 6 lakh villages are covered by the banking network.