What changed
The earlier requirement that at least one-third of Tier 3-6 branch openings be in underbanked districts of underbanked states is removed. Instead, banks must now ensure 25% of all branches in their Annual Branch Expansion Plan are in unbanked rural centres. For each branch opened in Tier 3-6 centres of underbanked districts of underbanked states (excluding those counted under the 25% rule), banks get an additional Tier 1 branch authorization.
What it means for you
Banks need to reorient their branch expansion strategy to prioritize unbanked rural areas, which may increase operational costs but supports financial inclusion targets. The new rule simplifies compliance by replacing a complex underbanked-district metric with a clear rural-unbanked quota. It also incentivizes opening in underbanked districts by offering extra Tier 1 branch approvals.
What you must do
- Ensure at least 25% of branches in your Annual Branch Expansion Plan are in unbanked rural (Tier 5/6) centres.
- Identify unbanked rural centres (no brick-and-mortar SCB branch) for branch planning.
- Leverage the incentive: for each branch in Tier 3-6 underbanked districts (excluding those under the 25% quota), apply for an additional Tier 1 branch authorization.
- Update internal branch approval processes to align with the new RBI criteria for Tier 1/2 centre authorizations.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Branch expansion planning teams, Financial inclusion and rural banking departments
What qualifies as an unbanked rural centre?
A rural centre in Tier 5 or Tier 6 (population up to 49,999 as per Census 2001) that does not have a brick-and-mortar branch of any scheduled commercial bank for customer banking transactions.
Does this change affect branch authorization for Tier 1 and Tier 2 centres?
Yes. RBI will now factor in whether at least 25% of total branches proposed are in unbanked rural centres, instead of the earlier one-third rule for underbanked districts of underbanked states. Additionally, branches in underbanked districts of underbanked states can earn extra Tier 1 authorizations.
Are RRBs covered by this circular?
No. The circular explicitly excludes Regional Rural Banks (RRBs) from its scope.