Large banks and non-bank lenders are making a concerted push to increase their presence in rural India and generate more business from the hinterland.
SBI chairman Dinesh Khara told FE last week that the bank’s operational support subsidiary, currently in the process of being set up, will help the lender get more business in rural India. At present, SBI’s branches across the hinterland typically have two employees each – an officer and a clerk – who are often engaged in facilitating transactions. The new subsidiary will focus on generating business and carrying out functions like opening new accounts and offering doorstep services, Khara said.
“We are seeing this as a vehicle for support. There may be a hub-and-spoke approach within a radius of a few kilometres,” Khara said, adding, “The rural space is changing and we would like to sweat the opportunities in the rural economy better.”
SBI’s lending under agriculture and allied activities crossed Rs 2.27 trillion during FY22, catering to more than 1.42 crore farmers. Its agriculture gold loan portfolio rose to Rs 73,601 crore in FY22, from Rs 66,878 crore in FY21.
HDFC Bank has enumerated rural banking as one of its key growth engines. In an interaction with analysts earlier this year, managing director and CEO Sashidhar Jagdishan said the bank has grown well in its commercial and rural banking division and improved its market share by 600 basis points (bps) over the last two years to 18.4% in FY22. In the rural segment, the bank is planning to expand its services to 200,000 villages in the next two years from 130,000 at present.
“On agri, the bank aims to improve market share by 300 bps to 9% by FY24,” analysts at Motilal Oswal Financial Services said in a report after the interaction.
HDFC Bank has 1,147 rural branches, 2,036 branches in semi-urban locations, 1,312 in urban centres and 1,843 in the metros, according to its annual report for FY22. The bank’s commercial and rural banking division was set up in the last financial year to cater to needs of the micro, small and medium enterprises, emerging corporates, commercial agriculture, small and marginal farmers, healthcare finance, equipment finance and commercial transport companies.
Non-bank lenders are also increasing their focus on growth opportunities in the hinterland. Piramal Finance, which has been offering loans for small business and used cars, in addition to doing unsecured lending, launched its microfinance business in the June quarter. The company has gone live in Rajasthan and Bihar with its micro loan offering and plans to expand to a few more states in the months ahead. Managing director Jairam Sridharan said, “Our objective and intent is to cater to the Bharat market with all core products that are important to the customer base there.”
In its December 2021 report on the trend and progress of banking in India, the Reserve Bank of India (RBI) said within population groups, the relatively higher credit growth to rural and semi-urban areas after the outbreak of Covid-19 was a bright spot. “While PSBs (public sector banks) remained the major contributor of rural lending, given their reach and accessibility, the share of PVBs (private banks) has also climbed up,” the central bank said.
Loan growth in rural markets remained in the double digits throughout the pandemic years, even as the same slumped to under 5% in metropolitan markets, according to the report.