What changed
Previously, banks needed RBI permission for each branch in Tier 2 centres. Now, general permission applies to Tier 2 centres, similar to Tier 3-6. The incentive for opening branches in underbanked districts of underbanked states (one Tier 1 branch for each branch in Tier 2-6 centres, excluding unbanked rural branches) is also extended to Tier 2 centres. Administrative offices and CPCs/service branches in Tier 2 centres are also covered under general permission.
What it means for you
Banks can now expand more freely in semi-urban areas (Tier 2) without regulatory delays, accelerating financial inclusion. The extended incentive encourages banks to open branches in underbanked districts, potentially improving credit flow and deposit mobilization in these regions. Banks must ensure compliance with reporting requirements and ABEP norms, including the 25% rural unbanked centre allocation.
What you must do
- Update your Annual Branch Expansion Plan (ABEP) to include Tier 2 centre openings under general permission.
- Ensure at least 25% of proposed branches are in unbanked rural (Tier 5-6) centres as per earlier circular.
- Report all Tier 2 branch openings to RBI as per prescribed reporting format.
- Leverage the Tier 1 centre incentive for branches in underbanked districts of underbanked states (Tier 2-6, excluding unbanked rural).
- Review and adjust branch expansion strategy to prioritize Tier 2 centres for better spatial distribution.
Who it affects
Domestic scheduled commercial banks (excluding RRBs), Branch expansion planning teams, Rural and semi-urban banking operations, Financial inclusion and ABEP compliance teams
What population range defines a Tier 2 centre as per this circular?
Tier 2 centres are those with population between 50,000 and 99,999 as per Census 2001.