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Private banks head for the hinterland

Once the preserve of state-run banks, India’s villages are now beginning to attract private banks. They are setting up branches in remote rural pockets, and engaging with communities to understand, and cater to, their banking needs

Surojit Gupta | TNN 

    Nazma, once a farm labourer, now runs a small business in Barabanki. She shows off her ATM card as she tells you how she pulled herself out of extreme poverty: “I do chikan work for large contractors in Lucknow. Thanks to a bank loan, I can earn Rs 3,000-4,000 a month. I have a bank account and also save some of my earnings,” she says, a wide smile lighting up her face. 
    In neighbouring Gothia village, Poonam Jaiswal, a housewife, runs her own beauty parlour and the earnings help her support her family. Across India’s villages, banks are now fanning out to tap the banking needs of the poor, helping them run small business ventures and enlarging their own business portfolio. 
    State-run banks have been the leaders in rural banking so far, but private banks such as HDFC, ICICI and Axis Bank too are beginning to turn their attention to a market that is believed to be worth thousands of crores. The combined share of staterun banks and micro-finance entities in the rural bank segment is estimated at Rs 60,000 crore. The slowdown and turmoil in the microfinance space and regulatory requirements have prompted private banks to tap this huge opportunity. 
    A plethora of gover nment schemes and the push for financial inclusion has opened up fresh business opportunities for banks. And the ATM card has now emerged as a symbol of dignity and identity for thousands of poor villagers. 
    “Our asset level now is Rs 760 crore and we can to Rs 4 000 crore in about three years,” says K Manohara Raj, executive vice-president, micro finance, at HDFC Bank. A pioneer in the rural banking space, Raj is attending to fresh demands for sewing machines from his clients in Gothia village. “Since 70% of Indian households live below the poverty line or just above it, they are excluded from organized financial services. But their credit demand is more than Rs 8 lakh crore.” 
    A lot of problems associated with rural banking are still around — accessibility, high dependence on human resources and lack of banking literacy among villagers, for example. But bank officers are learning to deal with these issues, travelling long distances, identifying and educating potential customers, forming groups, and assessing their financial needs as well as their ability to run a business. The focus is mostly on women customers and self-help groups. Banks are providing them with savings accounts, micro insurance and recurring deposits. They are also linking them to their big clients who could become customers for the products coming out of their cottage industries and agri ventures. 
    Almost 50% of ICICI’s branches are in rural or semi-urban areas staffed by a dedicated team of 10,000 people, says Sanjeev Mantri, senior general manager and head of rural and inclusive banking unit at ICICI Bank. “We also work with self-help groups, providing loans ranging from Rs 50,000 to Rs 6 lakh. We give them a savings account and check their savings pattern. On the basis of the corpus they build up, we give them loans for activities ranging from cattle and goat rearing to basket weaving and vegetable farming. We also work with companies to create access to markets for these groups,” says Mantri. 
    Banks deny that the rural business is risky. Bad loans are few and customers are keen to repay loans, say officers. HDFC Bank, for instance, reckons that its bad loans in the rural segment stand at less than 1%. 
    “When we take a loan, we have to return the money. Our dreams are very big and we know that poverty is a curse. We ensure that none of us default on repayment,” says Uma Soni. She runs a small artificial jewellery business that helps her put her children through school. 
    As banks make inroads into the hinterland, voluntary groups such as the American India Foundation are using mobile apps to teach youngsters some basic banking concepts. The availability of cheap smartphones and tablets help drive the point home. “We have realized that it is not enough to impart skills to the youth or build assets without improving financial literacy. It is critical for lifting the marginalized members of our community to a better quality of life,” says Hemanth Paul, country director of American India Foundation.