Banks focus on rural push to take on new competition


MUMBAI: A few private sector lenders have started strengthening their rural presence as they prepare to take on competition from new players who are being granted licence as part of the government's financial inclusion plan. 

HDFC Bank BSE -0.64 % is reaching out to the rural community on its own, Axis Bank BSE 0.71 %and Yes Bank BSE -1.31 % are working through business correspondents, or local representatives, and tie-ups. The push into these regions, though not very lucrative, is also in part due to the saturation in the urban areas. HDFC Bank, the country's No 2 private sector lender, is planning to reach out to 10 million families in rural centres over the next five years. 

The bank has 2,775 branches across the country and 75% of them are outside the top-nine metros. "We started this business in 2003. Initially, we tied up with micro-finance institutions and business correspondents because of limited branch network," said K Manohara Raj, executive vice-president and business head of sustainable livelihood banking at HDFC Bank. 

"Now, with a substantial branch presence, we are doing the business on our own." HDFC Bank has formed joint liability groups, or borrowers identified by the bank who open recurring deposits and avail of micro-loans. 

Starting with 40 managers and 100 field officers, the bank has scaled up the business model to 34,000 joint liability groups, comprising 300 managers and 2,500 field officers. 

It has opened basic 
savings accounts and recurring deposits for customers and has so far disbursedRs1,875 crore in loans. The bank's deposit base stands atRs42,000 crore."Forming our own groups gives us control on the quality of portfolio. Under the business correspondent model, we have had experience of the money not reaching the borrower," said Raj.