The Hindu Business Line : A good source of business; no longer a regulatory pain

Chennai, Nov. 28The examples are sporadic, but they do indicate a trend. Banks are no longer finding rural branches a regulatory pain, but sources of good business.

In less than ten months, Vijaya Bank’s Kothamangalam branch has not only got the bank business of Rs 10 crore (Rs 7 crore of deposits and Rs 3 crore advances), but has also influenced creation of demand from the neighbouring villages for banking services.

Enthused by the success at Kothamangalam, a town of 40,000 inhabitants, Vijaya Bank is shortly opening another branch at Rangiam, a town close-by. “These people (in these small towns) have a lot of money. They need banking services,” says Mr T. Valliappan, Executive Director, Vijaya Bank.

City Union Bank has experienced this. Udumalpet, Tiruchengode, Kangeyam, Rasipuram, Paramakudi — the list goes on — are places where this old-generation private sector opened a branch within the last 18 months. “All these branches are today doing business in excess of Rs 10 crore each. All of them turned profitable in the very first year,” says Mr N. Kamakodi, Executive Director of the bank.

Location crucial

The trick, he says, is to get the location right. Find a small town in the middle of a cluster of 15-20 villages, with a population of around 50,000 people and some trading or agri-business activity and you found a banking opportunity. Take the case of Indian Bank, one of the banks at the vanguard of the ‘financial inclusion’ movement. One of its outstanding successes has been in the town of Vadavalli in Tamil Nadu, near Coimbatore, where it opened a branch in November last year. Business: Rs 11 crore of deposits and Rs 3 crore of advances.

In the following month, Indian Bank opened another branch in Laskar, near Lucknow. This branch has fetched Rs 6 crore of deposits and Rs 5 crore of advances. Gangtok raked in Rs 9 crore within a year“It makes sense to open branches in rural areas,” says Mr M.S. Sundararajan, Chairman and Managing Director, Indian Bank, adding that it is, however, necessary to be a “barefoot banker” and truly mix well with the villagers.

“They would come to the branch manager and have a coffee, but they would be assessing the deposit-worthiness of the bank,” Mr Sundararajan says, recalling instances when villagers would close a conversation with a Rs 2-lakh deposit, in cash.

Pick-up causes

So, then, what is causing a pick-up in rural banking? Agriculture does not seem to have caused any meaningful rise in farm incomes. Bankers theorise that there is more money in the hands of rural folk, though not due to farm incomes. Younger members of the family migrate to cities and send back some money home.

Upcoming industrial centres such as Sriperumbudur and Maraimalainagar are hungry for shop floor hands, and this is resulting in employment for people in small towns and villages. Industries such as garmentshave to hunt for hands in villages beyond the neighbourhood, and provide dormitory facilities for the workers.

Tech route

In the coming years, technology will help take banking rural. According to Mr Valliappan, it is no big deal today to link up a rural branch to a central server and offer upmarket services. To put a VSAT, a solar panel for power, a UPS and an ATM, it will cost around Rs 10 lakh.