Axis Bank through its Bharat banking arm is looking to add 75-80 new branches this financial year to increase its penetration in rural and semi-urban markets. Axis Bank currently has 43% of its 4,758 branches in these areas. In comparison, ICICI Bank and HDFC Bank have 52% and 50% of their total branches in these regions respectively.
IndusInd Bank owns 44%, while Kotak Mahindra Bank’s branches in rural and semi-urban areas account for only 34%.
ICICI Bank started increasing its branches in rural and semi-urban areas even before the pandemic, as the bank added 134 branches in these areas in FY20, bringing the total to 1,126. The pace of bank branch additions has slowed during the pandemic, but rose to 1,251 as of Sept. 30. Out of a total of 6,499 branches, HDFC Bank has 50% of its branches located in remote areas and plans to add another 1,064 branches in FY23. The bank launched a rural banking unit in May to improve its operations in rural areas.
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Axis Bank plans to increase its credit and deposit market share in rural and semi-urban areas, relying on improved digital capabilities, dominated by a low-cost distribution model. The move comes against a backdrop of strong growth being witnessed by banks in rural and semi-urban areas. The lender’s total rural-focused product book grew 44% YoY in 1H FY23, led by microfinance, retail, farm and equipment financing, and business and gold loans.
“The RUSU (rural and semi-urban) market is an important growth area for us and we see significant opportunities to gain market share in these regions while driving higher profitability,” said Amitabh Chaudhary, managing director and chief executive officer of the bank said earlier on a conference call with analysts.
Analysts at Macquire Research said in a note that Axis Bank, which is focused on rural banking apart from the MSME segment, which accounts for 20 percent of total loans, sees good potential for the bank to expand its liability and asset base. Between 2018 and 2022, private banks’ credit market share in rural and semi-urban areas increased by 540 basis points (bps), to 24.1%. The share of deposits increased by 420 basis points to 17.8% over the same period, the bank said in a note. For the fortnight ended November 4, total credit outstanding in the banking sector stood at Rs 128.9 trillion, while deposits stood at Rs 173.7 trillion.
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Rural banking division head Munish Sharda had earlier said the bank was looking to grow its priority sector lending through organic growth rather than through priority sector loan certificate acquisitions. According to a report by ICICI Securities, many private sector lenders are lagging in the organic growth of rural lending and have to rely on PSLCs to meet their targets. While private banks meet their overall priority sector lending targets by buying from small finance banks and regional rural banks, there is a shortfall in lending to small and marginal farmers and unincorporated individual farmers, the brokerage said.