NEW DELHI: Private sector banks like HDFC, Axis and Kotak Mahindra have stepped up the expansion of branches; most of them now in rural areas, with a strategy to capture new opportunities created by the spurt in rural economy growth, driven by government policies and consumption patterns.
These banks plan to challenge public sector banks with better services and newer products, tailored for small towns and semi urban areas across the country.
About six years ago, when HDFC began expanding to meet competition in urban areas like Chennai, Bengaluru, Mysore, Kochi and others, they noticed that their product and services attracted customers from the outskirts in large numbers. “That is when we began planning our rural expansion and have now stepped up the pace,” Ravi Narayanan Country Head -Branch Banking & Retail Trade FX Business, HDFC Bank told Express.
Traction for HDFC from rural customers got a bigger impetus with growth in fast moving consumer goods (FMCG) business. “The uptake for two wheelers loans by individuals was matched by the demand for loans by original equipment manufacturers in rural regions,” says Narayanan.
Demand for other consumption items like soaps and electronic items along with commercial vehicles, is an indicator that rural uptake has begun for financial intermediation. “The government in the last two years through various schemes has made banking viable in rural areas. There is a huge potential and we are going to expand further,” said Sanjay Silas, President & Head Branch Banking, Axis Bank.
While Axis and HDFC followed an organic growth model to expand its reach, Kotak Mahindra accelerated the number of rural branches, especially in South India, with the acquisition of ING Vyasa Bank in 2014. According to a report by Espirito Santo Securities, ING Vysya offers Kotak Mahindra access to southern states like Andhra Pradesh, Karnataka and Tamil Nadu, where the latter has limited footprint.
“We had to be in these areas to understand them better… such decisions cannot be ideated in the board room of corporate office… so initial foray was done with considered opinion and collective wisdom,” says Narayanan of HDFC. These Banks also undertook intensive studies to decide on how to expand branches in the rural sector. Government thrust for financial inclusion, growing aspiration and consumption growth has also played a significant role.
The challenge, however, is to keep up momentum. With the monsoon better than anticipated, rural uptake for banking services is expected to spurt. “With more than 55 per cent of total branches in rural areas, our executives have been reaching out to Panchayats regularly,” says Narayanan.
It seems the more branches private sector banks open in rural areas, the more the urban-rural divide in banking is being re-written.