NPSBs concede that this three-year reprieve did give them a headstart over public sector banks which have had to meet more stringent targets. Officials in five of the new private sector banks said that by the time the three-year holiday on branch category stipulations came to an end, they had between them succeeded in setting up over 30 branches in urban areas.

The RBI licensing conditions applicable to all new private sector banks state that while these banks need not necessarily open up branches in rural or semi-urban centres during the first three years of their operations, once the moratorium is over, one out of four new branches would have to be in such centres.

Technology is a major issue in non-urbanbranches. Since every new private sector bank's internal policy requires that all branches must be connected online a realisation is now sinking in that these costs will be difficult to justify in low business potential areas.

The cost of a VSAT connection, leased lines and the technology set-up comes to about Rs 1 crore per branch whether it is located in urban or non-urban areas. To break even at such a cost, a branch needs at least Rs 26-27 crore of deposits in the first year--a level that rural and semi-urban branches are unlikely to meet. A typical non-urban deposit base would be around Rs 5-10 crore--far short of the required level. Good quality assets are also difficult to come by in these centres. To add to this, there are severe power shortages, which hamper the functioning of high-tech set-ups.

Apart from internal policy, the new banks also need online connections to their farflung branches in order to be able to monitor their assets and liabilities on a realtime basis.

In fact, even thoughthe RBI does not stipulate the use of technology in these branches, it seems to be evident to banks that the logic behind the central bank's directive may have less to do with credit delivery in this case and more to do with taking technology to these areas--just as branch stipulations for public sector banks took the banking habit to unbanked areas in the first decade after nationalisation.

Some banks have gone beyond core technology and opened ATMs in places like Gobichettipalayam and Perianaickenpalayam in Tamil Nadu. But too many of these would not be viable, state bankers.

And this is not the only problem. The other is that the sole criterion for defining these categories of branches is the population figure as estimated by the last census, which today is the 1991 census. A centre with a population of less than 10,000 is a rural one, one with a population between 10,000 and one lakh a semi-urban one. From one lakh to 10 lakhs a centre is categorised as urban centre and above that a metro.

Thiscriterion is now beginning to nudge all new private sector banks to certain centres, which is what has happened in the case of places like Gurgaon, Panchkula, Mohali, Goa and, closer to Mumbai, Vasai. A peculiar predicament is that these centres end up getting overbanked, which, in turn, spurs on industrial activity. This, in itself is a good thing but for the fact that other centres which need banks get ignored for long periods of time to come.

Sometimes, the heightened industrial activity spurs on quick population growth in these centres, which are often on the borderline between urban and semi-urban even to begin with, and then graduate to being urban centres. This has placed new private sector bankers in a dilemma: if the semi-urban centres where they have set up branches acquire urban status in the next census, would they be required to make up the resultant shortfall all over again?

Says a senior private sector banker: "Perhaps more concrete clarification on this from the RBI will help us planbranch expansion. A better way of dealing with these targets would be to at least lower them, if not do away with them altogether. Even in the case of public sector banks, there is very little need for most of them to be present together in all centres. Ideally, they should have a distributed presence. Also, incentives in the form of subsidies could be given to banks in such centres."

The general perception is that in the case of the technologically up-to-date new private sector banks, too many of such quantitative targets can only lead to their setting up conventional branches without technology to avoid taking a hit. Not only does that mean poor asset-liability management, it also defeats the actual purpose behind these stipulations--which is to take technology beyond the metros and urban agglomerations.