The Reserve Bank of India has put on hold all applications for opening of new branches by banks penalised early this year for violation of customer identification norms in the IPO scam.
If the decision is not revised soon, ICICI Bank and HDFC Bank will be hurt the most. ICICI Bank has plans to open 300 new branches, while HDFC Bank has drawn up plans for 150.
The IPO scam: Complete Coverage
According to banking industry sources, both these banks have identified most of the premises where the new branches will be located, bought computers and other hardware to set up business and have even employed people for the proposed branches.
ICICI Bank now has 614 branches and 2,200 ATMs, while HDFC Bank has 535 branches and 1,326 ATMs. In 2005-06, ICICI Bank opened 52 new branches and 290 ATMs and HDFC had added 68 branches and 179 ATMs to its network.
An HDFC Bank source said some of the executives hired for the proposed branches had been working at existing branches where new computers, too, had been put to use. According to sources in ICICI Bank, the bank has identified premises for new branches but they have not been taken up on lease as yet.
If the banking regulator refuses to give its nod to opening of new branches, both these banks will find it difficult to grow business. Incidentally, ICICI Bank managing director and CEO KV Kamath had recently hinted at going slow on the retail front. A section of the industry is linking it to the delay in receiving the RBI nod for new branches. Banking industry sources said the RBI would clear the plans only after the noise over the IPO scam died down.
"At the moment, the RBI is under pressure to act tough (on the banks named in the IPO scam). It has not formally rejected any application. Possibly, the go-ahead will take some time," said an industry source. Executives of both the banks have met RBI Governor YV Reddy on this issue recently.
Various plans put on hold by the central bank include setting up international branches, establishing corresponding banking relations for starting new ventures with other banks and opening new bank branches for expansion of business.
"In general, the RBI is going slow on granting permission for new branches. It has circulated a comprehensive branch expansion policy recently, encouraging banks to expand in un-banked areas. But very few new licences have been issued so far," said a new banker.
The RBI has penalised a string of banks for violation of know-your-customer norms.
The list includes HDFC Bank, ICICI Bank, Citibank, Standard Chartered Bank, Industrial Development Bank of India, ING Vysya Bank, Vijaya Bank, Indian Overseas Bank and Bharat Overseas Bank (which is being merged with Indian Overseas Bank). All these banks will find it difficult to get regulatory approval for new businesses and new branches.
In some way, these banks had failed to adhere to the established norms for granting loans against shares and for funding purchase of shares in initial public offers. The penalties ranged from Rs 500,000 to Rs 25 lakh (Rs 2.5 million).
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