State Bank gets serious about hinterland

State Bank of India (SBI) has embarked on a mission to strike it big in rural India. The country's largest bank dreams of building a rural business that would be bigger in size than the rest of its businesses "� a dream code-named "The Quest For The Impossible".

SBI would jostle with the second largest lender, ICICI Bank, for a lion's share of the financing business in the country's rural landscape. ICICI Bank's rural expansion plan is termed "No White Spaces" strategy.

SBI is in the process riding piggyback on the country's blue-chip companies like Reliance Industries and ITC, apart from several other potential banking channels, for the largely untapped rural potential.

"We want to own rural India," O P Bhat, chairman of SBI, said on the bank's ambitious plans for expanding further into the Indian hinterland.

The bank wants to add 40 million rural customers to its existing 10 million customers over the next 5-8 years. SBI's total customer base is around 100 million. Among SBI's other rural initiatives are plans to issue 10 million SBI biometric cards by March 2009 and provide credit to 2.63 lakh self-help groups by March 2008.

SBI has the largest network of rural branches at 3,882, which accounts for 42 per cent of its total branches. It has 2,530 semi-urban branches, forming 27 per cent of its total branches. Around 84 per cent of the bank's rural branches are profit making.

The bank had earlier announced its intention to cover 1,00,000 unbanked villages in 24 months under the financial inclusion plan.

SBI Chairman OP Bhatt had said the bank may consider adding another 1,00,000 villages over the following two years, depending on the success of the first phase.

To formalise its rural thrust, the bank had last year hived off its rural business into a separate unit called the Rural and Agricultural Business Group (RABG). The bank then hired a consultant to examine whether there was really a rural growth story that the bank could tap into.

The bank now wants to ramp up its share in rural credit from 18 per cent to nearly 24 per cent in the next five years. The next 3-4 years will see the bank growing its rural portfolio to 40 per cent against 25-30 per cent now, leveraging on its branch network and using alternate distribution channels.

"The target is to grow the rural business to 33 per cent of the bank's business over the next 3-5 years from 22 per cent now," said Anup Banerji, deputy managing director-rural business, SBI.

The bank's advances in the rural areas stand at Rs 75,000 crore out of its total advances of Rs 3,42,232 crore at the end of March 2007. Of the total deposits of Rs 4,35,521 crore, rural branches account for Rs 1,25,000 crore.

"We are preparing for propulsion. Not only should the growth match the parent bank but it should also help SBI achieve its financial inclusion objective," said Banerji.

"We are talking to the top of the shelf corporates like ITC and Reliance to see which model to adopt so that the alliance equally benefits both. We are talking about a marketer and a public sector bank branch manager. The mindsets are different. So the interface has to be smooth, which is why we are talking to only top of the shelf corporates," said Banerji.

First, the bank would extend finance to farmers from whom the corporates would source agriculture produce. In the second leg, the corporate would use the bank's reach to make payments to these farmers.

"The question as to what will be the payment system, the money to be charged by SBI and the payment to be made by SBI to the corporate for bringing the business are being discussed," said Banerji.