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The determinants of bank branch location in India: an empirical investigation

Quanda Zhang (Federation Business School, Federation University Australia, Ballarat, Australia)
Rashmi Arora (School of Social Sciences, University of Bradford, Bradford, UK)
Sisira Colombage (Federation Business School, Federation University Australia, Ballarat, Australia)

International Journal of Bank Marketing

ISSN: 0265-2323

Article publication date: 12 March 2021

Issue publication date: 6 July 2021

359

Abstract

Purpose

Bank branching plays a significant role in a wide range of economic activities. Existing studies on determinants of bank branching activities largely focus on developed countries; studies devoted to developing countries are scant. The purpose of this paper is to examine the determinants of bank branching activities in one of the largest developing country India.

Design/methodology/approach

The authors employ a unique longitudinal data to study the determinants of bank branch location in India. These data are collected at the state level covering 25 Indian states for the period 2006–2017. The authors employ Poisson regression that are better suited for modeling counted dependent variable.

Findings

First, region and bank specific factors such as size of population and bank deposits influence location of bank branches. Second, the relationship between these factors and branch locations is heterogeneous across different types of banks and across states with different business environments.

Practical implications

First, from the view of banks, considering the factors of branch location are crucial in order to set out branching strategy. Irrespective of policy measures aimed at promoting financial inclusion in India, the authors show that banks consider economic activities in the region in locating their branches. Second, from the view of policy makers and regulators, such branching strategy could potentially contribute to financial exclusion. As a result, population in the less developed regions may be excluded from accessing financial services. Hence, policy makers and regulators should take into this account when formulating policies aimed at promoting financial inclusion.

Originality/value

First, while existing studies largely focus on developed countries, studies devoted to developing countries are scant. To the best of our knowledge, the authors have not come across any study that investigates the determinants of bank branch location in India, so the authors reasonably believe that this study is a first-of-its-kind. Second, the study provides a new perspective concerning how regional and bank specific factors influence banks of different ownership in locating branches. Third, while traditional regression used to be a method of choice among early studies, the authors employ Poisson regression that is better suited for modeling counted dependent variable.

Keywords

Citation

Zhang, Q., Arora, R. and Colombage, S. (2021), "The determinants of bank branch location in India: an empirical investigation", International Journal of Bank Marketing, Vol. 39 No. 5, pp. 856-870. https://doi.org/10.1108/IJBM-07-2020-0395

Publisher

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Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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