Banks usually would like to open their branches at places where their customers (depositors and borrowers) are concentrated and their business could flourish at a rapid pace. Such a strategy, however, could be at variance with the socio-economic objectives of a country. For the last few years, State Bank has been making hectic efforts to extend the outreach of the banking institutions in order to make the system more inclusive. On 24th May, 2016, it went up a step further and revised the existing Branch Licensing Policy (BLP) aimed at enhancing the coverage of banking facilities with a specific focus on rural and underserved areas. According to the revised policy, SBP had introduced tier-wise geographical distribution of new branches proposed by the banks under Annual Branch Expansion Plan (ABEP) in different segments such as big cities, other cities, rural and underserved areas (RUAs) and unbanked areas. The new policy would require the banks to enhance the RUAs requirement (including unbanked areas) from the existing 20 percent in 2016 to 25 percent by the close of 2021. Introduction of criteria for upgradation of sub-branches into full-fledged branches was also a part of the revised policy, besides enhancement of the scope of big cities from 13 to 18 for the purpose of BLP. Banks were also given instructions regarding accessible banking infrastructure for persons with disabilities/senior citizens/women as a part of banks' corporate social responsibility and moral obligation. A licence issued under a given ABEP would expire if a branch at a licensed place is not opened within three months. Banks would also not be allowed to downgrade any of their existing branches into sub-branches in RUAs and unbanked areas. Commercial banks were also allowed to offer banking services through bank vans with prior written approval of the SBP with the main purpose of retail delivery of financial services at the doorsteps.
The rationale for adopting a revised BLP by the SBP is obvious. It seems to be a part of the broader National Financial Inclusion Strategy (NFIS) for Pakistan that aims to extend the outreach of the financial institutions to the maximum extent possible. The provision of financial services, particularly in rural and unbanked areas, has always been a policy priority of the SBP and balancing the distribution of branch network amongst different areas of the country was usually the instrument to achieve this objective. Such a policy had, however, a limited success as unbanked areas of the country still appear to be deprived of banking facilities while relatively affluent areas of the big cities seem to have bank branches after every few meters and could easily be categorised as over-banked. The new policy of the State Bank would constrain the banks to open more branches in the RUAs and unbanked areas and encourage the households in these areas to save more and also borrow for productive purposes. Overall, agricultural sector and cottage industries in the backward regions could get some boost and the new policy would also serve to reduce income inequalities and increase employment at the local level to a certain extent. However, we feel that the new policy has still certain loopholes. For instance, the requirement to enhance the coverage of RUAs (including unbanked areas) from the existing 20 percent to 25 percent by the end of 2021 and enhancement of the scope of big cities from 13 to 18 would not be enough to make a meaningful difference, especially when the banks are required to meet these conditions over a long period of next five years. Also, the revised policy does not specify the distance between various branches with the result that bank branches would continue to be concentrated in prosperous areas and a judicious opportunity of availing the banking facilities will not be offered to various segments of population. The policy of providing comfortable environment to senior/disabled persons and women is of course a very noble objective but the banks have never usually cared for this moral obligation and are also not likely to be moved by the new circular of the SBP.
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