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Private banks going rural to tap business potential

Currently, banks are obliged to open their urban and rural branches at a ratio of 4:1.

Sajjadur Rahman
Private commercial banks (PCBs) are increasingly penetrating into rural Bangladesh to tap business potential, according to sources in the banking sector.
The business prospects bankers think in rural areas include remittances, agriculture and small credits and possibility of attracting more deposits.
“We've made profit in rural branches within one year of operation, but it took at least two years in urban areas," AKM Shafiqur Rahman, company secretary of the National Bank limited, said.
"Deposits are also high in rural areas as the people there are increasingly depositing the money received from their expatriate relatives, but demand less for loans,” Rahman said.
The PCBs' move would give a lid to the monopoly specialised and state-run banks were enjoying over rural business for years, according to the banking circle.
BRAC Bank, the fastest growing private sector bank, now awaits the central bank's nod to its application for opening of 140 branches this year. Of which, the bank officials said, most of them would be in rural areas.
Another private bank, National Bank has sought permission to open 25 branches
this year, of which at least 50 percent will be in rural areas. Other private banks, including Islami Bank Bangladesh, Prime and Dhaka banks etc have also planned to open more branches in rural areas.
According to Bangladesh Bank, as of2007, there are 6,576 public and private bank branches in Bangladesh. Of which, 3,839 branches or 58.38 percent are in rural areas and
the remaining 41.62 percent in urban areas.
The density of banks in rural areas is more than the urban ones due to specialised and state-run banks, which have 88.59 percent and 63.42 percent of their branches respectively in rural areas.
PCBs are lagging behind with only 27 percent of their branches located in rural areas,
according to the central bank, which in a new directive has recently asked the PCBs to open branches in rural areas.
Currently, banks are obliged to open their urban and rural branches at a ratio of 4:1. But recently PCBs are going at faster pace in terms of opening rural branches.
National Bank set up 10 branches in rural areas out of the 25 it opened during 2006-
had been able to show a Tk20 crore deposit within a year of their operation on increased flow of remittance.
"We're contemplating to set up 100 branches in rural areas out of the proposed 140 new branches aiming to explore the potentials of the rural economy,” Abedur Rahman Sikder, head of marketing and corporate affairs of BRAC Bank, told The Daily Star.
07, meaning 40 percent of the branches are in rural areas.
BB data shows 72 new branches were opened in rural Bangladesh in the last one year. Of which, 61 branches, or about 85 percent, belong to private banks. The number of PCB branches in 2006 was 429, which stood at 490 in 2007.
The National Bank Limited plans to go faster for rural expansion targeting net business from remittance services.
"If we get permission to open 15 branches this year, we ll set more than 50 percent of those branches in the rural areas," the bank's company secretary said.
He said some of the branches opened in rural areas
At present the bank, which started operation in 2001, has 36 branches. For the past three years BRAC Bank has been the country's fastest growing private bank, which has already had over one-lakh SME clients across the country. The bank has disbursed about Tk 4,000 crore to the SME sector in the last three years.
Islami Bank Bangladesh Limited also decided to boost its activities in rural areas by setting up more branches. Accordingly, a scheme -Rural Development Scheme, has recently been introduced to raise the hank's investment in rural economy, its officials said.
sajjad@thedailystar.net