Section 23 of the Banking Regulation Act, 1949 – Relaxations

RBI/2009-10/243
DBOD.No.BL.BC. 65 /22.01.001/2009-10

December 1, 2009

All Scheduled Commercial Banks
(excluding RRBs)

Dear Sir

Section 23 of the Banking Regulation Act, 1949 –
Relaxations in Branch Authorisation Policy

A reference is invited to paragraph 152 of the Second Quarter Review of Monetary Policy for the Year 2009-10 (extracts enclosed – Annex I) regarding the proposals to liberalise the extant Branch Authorization Policy for domestic scheduled commercial banks (other than RRBs) based on the recommendations of the Working Group constituted by RBI to review the extant Branch Authorisation Policy.

2. Accordingly, Reserve Bank of India hereby permits domestic scheduled commercial banks (other than RRBs) to open branches in Tier 3 to Tier 6 centres (with population upto 49,999 as per Census 2001 – details of classification of centres tier-wise furnished in Annex II) without having the need to take permission from Reserve Bank of India in each case, subject to reporting.

3. Reserve Bank of India also permits domestic scheduled commercial banks (other than RRBs) to open branches in rural, semi-urban and urban centres in North Eastern States and Sikkim without having the need to take permission from Reserve Bank of India in each case, subject to reporting.

4.  Opening of branches by domestic scheduled commercial banks (other than RRBs) in Tier 1 and Tier 2 centres (centres with population of 50,000 and above as per 2001 Census) will continue to require prior permission of the Reserve Bank of India, except in the case of North Eastern States and Sikkim where the general permission would cover semi-urban and urban centres also.  The number of branches which would be authorized by the Reserve Bank of India based on such applications would depend, inter alia, upon various aspects, including a requirement that banks may plan their annual branch expansion in such a manner, that at least one-third of total number of branches opened in a financial year in Tier 3 to Tier 6 centres  are in underbanked districts of underbanked States (as per Annex III), as also upon a critical assessment of the bank’s performance in financial inclusion, priority sector lending, customer service etc.

5. Banks are also free to convert their general banking branches into Specialised branches subject to the condition that the bank should continue to serve the existing customers of the general banking branches, which are being converted into specialized branches.

6. The general permissions referred to in paragraphs 2, 3 and 5 above would be subject to regulatory/supervisory comfort in respect of the bank concerned and RBI would have the option to withhold the general permissions now being granted, on a case-to-case basis, taking into account all relevant factors.

7. Details of branches opened by banks under general / specific permission and general banking branches converted to specialized branches may be reported to RBI in terms of the existing reporting system as envisaged in paragraph 19 of the Master Circular on Branch Authorisation dated July 1, 2009.

8. As regards foreign banks, the existing Branch Authorisation Policy as contained in the Master Circular on Branch Authorisation dated July 1, 2009 would continue to be applicable until review of the roadmap for foreign banks.

9. This circular is issued in partial modification of the instructions contained in the Master Circular on Branch Authorisation (Circular DBOD.No.BL.BC.20/22.01.001/2009-10 dated July 1, 2009).

Yours faithfully

(P.Vijaya Bhaskar)
Chief General Manager-in-charge

Encl: as stated above

Annex I

Extracts from the Second Quarter Review of Monetary Policy 2009-10

Relaxations in Branch Authorisation Policy

152. As announced in the Annual Policy Statement of April 2009, a Working Group (Chairman: Shri P. Vijaya Bhaskar) was constituted to review the extant branch authorisation policy with a view to providing greater flexibility  to banks for opening branches to enhance banking penetration and promote financial inclusion. The Group has since submitted its Report. Taking into consideration the Group’s recommendations, it is proposed to liberalise the extant Branch Authorisation Policy for domestic scheduled commercial banks (other than RRBs) as under:

•   Domestic scheduled commercial banks (other than RRBs) will now be free to open branches in Tier 3 to Tier 6 centres as identified in the Census 2001 (with population up to 50,000) under general permission.

•   Opening of branches by domestic scheduled commercial banks (other than RRBs) in Tier 1 and Tier 2 centres (with population over 50,000) will continue to require prior authorisation.

•   Banks may plan their branch expansion in Tier 3 to Tier 6 centres in such a manner that at least one-third of such branches are in the underbanked districts of underbanked States as will be notified separately by the Reserve Bank. This would be one of the criteria in the Reserve Bank’s consideration of proposals by domestic scheduled commercial banks (other than RRBs) to open branches in Tier 1 and Tier 2 centres.  In considering such proposals, the Reserve Bank would, in addition, take into account banks’ performance in financial inclusion, priority sector lending and level of customer service, among others.

Annex II

Details of tier-wise classification of centres based on population

Annex III

List of Underbanked Districts in Underbanked States (based on 2001 Population census)

TOTAL NUMBER OF UNDERBANKED DISTRICTS IN UNDERBANKED STATES  :- 292