Time to overhaul branch expansion models

A consistent narrative has unfolded in branch expansion strategies in India over the past decade.

The process typically begins with gathering credit data to identify geographies with credit-active households, commercial density and visible signs of economic activity. This initial assessment is followed by an analysis of the locations of established players and a verification of whether a major bank has recently opened a branch in the same area, which serves as a validation of the market’s potential. Based on these findings, a decision is made to open a new branch.

While this approach is not entirely flawed, it is built on a narrow foundation. Specifically, it is prone to three distinct failure modes:
 

• Credit data captures behaviour-what people have borrowed and how they have repaid. It says very little about wealth accumulation, savings propensity or the stage of economic development a micro-market is in
• Following competitor locations tells you a market crossed a certain threshold of viability. However, it says nothing about whether it is the right market for your specific model
• Anchoring on large incumbent banks means you are, at best, entering a market someone else already shaped competing for established relationships that are already loyal and expensive to acquire
• Location identification is not always wrong, but it has often been imprecise in ways that compounded over time. Until recently, this imprecision was difficult to avoid