Indian banks bet big on branches: The rapid expansion of fintech, mobile banking, and digital payments has undoubtedly transformed the way people access financial services. Yet, physical bank branches remain far from obsolete. In fact, for India, a country still grappling with patchy internet access and uneven financial literacy, brick-and-mortar banking infrastructure continues to play an indispensable role in driving financial inclusion.
While digital banking has grown exponentially—enabling consumers to conduct transactions through smartphones and computers—there remains strong demand for in-person banking services. This is especially true for semi-urban and rural populations, and for complex transactions such as loans, investments, and foreign fund transfers.
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Acknowledging this reality, the Union finance ministry has nudged public sector banks (PSBs) to expand their physical presence, even as private and small finance banks (SFBs) step up their branch networks. Between April and December 2024, PSBs opened 1,391 new branches—spanning metro, urban, semi-urban, and rural areas—compared to 1,552 by private sector banks. SFBs added another 1,272 branches, while regional rural banks contributed 61.
The ‘phygital’ future of Indian banking
Finance minister Nirmala Sitharaman has articulated a vision of a ‘phygital’ banking future—where digital and physical channels coexist and complement each other. This blended approach is especially critical in underbanked regions like the Northeast, where branch presence helps bridge gaps in infrastructure and digital access. According to the finance ministry, branches enhance deposit mobilisation, improve service quality, and strengthen trust-based relationships.
The top four private banks have added over 3,500 branches in the last two years, showing that even the most digitally advanced institutions view physical expansion as a growth strategy. These branches are not merely transactional hubs but also function as centres for cross-selling financial products and educating customers about schemes, mutual funds, and insurance.
The need for branches
Despite growing familiarity with online tools, customers—especially older cohorts and those in rural areas—still prefer face-to-face interactions for certain services. Reports show that even basic activities such as balance inquiries and account-related queries continue to draw customers to branches.
HDFC Bank, which opened 421 new branches till December 2024, sees 90% of these break even within 20–21 months. Axis Bank added 337 branches in the same period, and Kotak Mahindra Bank 134. Clearly, the economics of physical branches remain compelling when backed by a solid customer base and service delivery.
Global trends show diverging paths
Globally, the trend is more nuanced. In advanced economies like the US, the pandemic accelerated digital adoption. According to a Forbes report, 85% of Americans now use digital tools for most or all financial transactions. Between 2018 and 2023, an average of 1,646 branches closed annually. Yet, 72% of new current accounts in 2023 were opened through physical branches—revealing that customers still trust physical setups for onboarding and critical engagements.
In Europe and North America, younger, digitally native consumers are driving the shift away from branches. But in India, the trend is geographically segmented. Urban customers may lean digital, but rural and semi-urban consumers continue to value proximity and human interaction. A report by Accenture found that around 70% of Indian consumers prefer a nearby physical branch when dealing with specific banking issues.
Economics and strategy of branch banking
Maintaining physical branches comes at a cost. High rental, staffing, and operational expenses weigh on profitability. Yet, branches offer strategic returns—acting as touchpoints for customer engagement, cross-selling, and brand trust. For banks, the decision is no longer about choosing between digital and physical models, but about optimising both.
India’s banking sector must avoid repeating the West’s playbook. Instead, it must customise its approach to local demographics, infrastructure limitations, and consumer preferences.
Indian banks and reinventing branches
Looking ahead, bank branches must evolve to stay relevant. The traditional teller-and-desk model may not survive the next decade. Instead, branches must become leaner, more tech-integrated, and focused on customer experience. Video advisory, AI-driven support, and digital kiosks may redefine in-branch service delivery.
Still, the physical footprint remains a competitive advantage—when executed smartly. The successful banks of tomorrow will blend digital agility with physical reach, offering seamless services across channels.
The global experience shows that there is no universal model for branch banking. Developed countries may lean toward consolidation and digital optimisation. But emerging markets like India—where financial penetration and digital infrastructure remain uneven—require a more granular approach. In such contexts, expanding physical infrastructure remains not just relevant but necessary.
Rather than writing off branches, India must reimagine them—as adaptable, efficient, and customer-centric nodes in a broader, digitally empowered financial system.