Finance Ministry urges PSBs to expand branches amid private sector growth

Business Standard

2 days ago

Amid rising competition from private and small finance banks, PSBs have been asked to scale up physical infrastructure and cover over 200 unbanked population clusters
New Delhi
The Union Finance Ministry has directed public sector banks (PSBs) to identify potential areas and expand their branch networks amid intensifying competition from private banks, according to a senior government official who spoke on condition of anonymity.
'Banks have been asked to compete with the aggressive branch expansion by private sector banks and Small Finance Banks. PSBs need to scout for potential areas and open new branches,' the official said.
During FY 2024–25 (till 31 December 2024), PSBs opened 1,391 new branches—271 in metropolitan areas, 311 in urban, 539 in semi-urban, and 270 in rural regions. In comparison, private sector banks led the expansion with 1,552 new branches: 545 in metropolitan, 466 in urban, 318 in semi-urban, and 223 in rural locations.
Digital progress noted, but physical expansion emphasised
The finance ministry has acknowledged the progress made by PSBs in enhancing digital capabilities. However, officials have made it clear that this must not come at the cost of physical presence.
'A strong physical presence helps build personal connections with customers, enhances service delivery, and plays a crucial role in mobilising deposits,' the official said.
Earlier this month, Union Finance Minister Nirmala Sitharaman said India's financial future would be 'phygital'—a blend of physical and digital services.
'It is important to leverage the reach of technology as well as maintain physical presence to serve customers better and build trust over time,' Sitharaman said at the Digital Payments Awards 2025 in New Delhi.
Private banks dominate branch expansion in FY25
Major private banks continued their aggressive branch rollout in FY 2024–25. HDFC Bank led with 421 new branches—137 in metropolitan areas, 168 in urban, 98 in semi-urban, and 18 in rural.
ICICI Bank followed with 249 branches (83 metropolitan, 91 urban, 36 semi-urban, and 39 rural). Axis Bank added 337 branches, including a notable 107 in rural areas. Kotak Mahindra Bank opened 72 branches, primarily in urban and semi-urban zones, while Mahindra Bank added 13. Other private banks contributed 460 branches.
Focus on financial inclusion in North Eastern region
The finance ministry has also asked PSBs to expand banking infrastructure in the North Eastern region, where population density is lower but financial inclusion remains a priority.
'Two hundred and fifteen clusters with populations exceeding 3,000 and no bank branches have been identified,' the official said.
In Phase 1, branches will be opened in 51 clusters with populations above 8,000. These locations have already been allotted to banks. In Phase 2, the remaining 164 clusters will be covered.
Strong performance by PSBs in business, profitability
Between FY 2022–23 and FY 2024–25, total business of PSBs rose from Rs 203 lakh crore to Rs 251 lakh crore. During the same period, net non-performing assets (NPAs) declined from 1.24 per cent to 0.52 per cent.
Net profit increased from Rs 1.04 lakh crore to Rs 1.78 lakh crore, while dividend payouts grew from Rs 20,964 crore to Rs 34,990 crore.