In India, what drives private banks’ interest in rural areas?

Tuesday, November 5, 2013

The coincidence of the drive for “financial inclusion” and rural India’s brisk growth offer interesting insights into the finance-growth nexus. The rapid increase of rural incomes and consumption with a shift in expenditure patterns has altered the business perceptions of private banks about this segment of the economy. Rural businesses do not seem so risky any more. Their untapped potential is a growth driver for many private banks; HDFCBank Ltd, for instance, aims to grow its business share from rural areas to 50% in the next five years.

Differences in rural-urban demand patterns are now exploited to balance cyclical pressures by some private banks. Banks are eager to finance consumer, personal and business loans in this sphere, not just mobilize deposits as was earlier the case. While all public and private banks were advised to incorporate “financial inclusion” plans from 2010, a growth-spurred momentum to this process is unmistakably visible.

Source: Live Mint (link opens in a new window)

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banking, financial inclusion, rural development