By Sumit Sharma and Haslinda Amin, Bloomberg
Mumbai: ICICI Bank Ltd, India’s biggest by market value, expects its rural exposure to begin adding to profits in as early as 18 months, K.V. Kamath, chief executive said in an interview with Bloomberg Television.
The bank aims to increase the contribution of borrowers from the countryside to as much as 25% of total loans within two years as the government increases its focus on the rural economy to help boost agricultural output, he said. Loans during the three months to 31 December grew 42% to an outstanding Rs1.8 trillion.
“The focus the government has given to agriculture and the rural economy, fits into what we have been trying to do,” Kamath said. “We think the strategy we articulated will take 18 to 24 months to scale up. Eighteen to 24 months normally is a long period for us in context of other domains, but in rural India we need to be patient because of the sheer challenge.”
India’s government wants to increase agricultural growth to expand gross domestic product at a faster pace and help its 234 million farmers. Finance Minister P. Chidambaram in the annual budget increased the allocation of bank loans for the farmers to Rs2.3 trillion in the year beginning 1 April, from Rs1.7 trillion.
In India’s countryside, about 58% of farming households and 70% of non-farming households still lack access to basic banking services, Chidambaram said in November.
India’s $854 billion economy is poised to expand at 9% in the year ending 31 March, for a second successive year. The government aims for 10% growth in each of the next five years, Chidambaram said.
Slower agricultural growth has also put pressure on the price of staple foods in a nation of 1.1 billion people. Farm output increased 1.5% in the quarter to 31 December, the government said, slowing from 1.7% in the second quarter and 3.4% in the previous three months.
Every seven of 10 Indian lives in the rural area and a rise in their incomes will help India’s economy expand faster, Chidambaram said. India has about 65,000 bank branches, or one for every 10 villages, according to central bank data.
ICICI Bank is working on getting an ‘appropriate technology’ to reach to the more than 600,000 villages across the nation, Kamath said.
“We have started recruiting for the rural strategy and we have technology that is appropriate for the rural India,” said Kamath. “We have taken early steps to move into the rural economy.”
The bank plans to use branches, franchises, telephone kiosks and automated teller machines to lift its rural customer base eightfold, Deputy Managing Director Chanda Kochhar said in November.
ICICI aims to screen borrowers and approve loans of as little as $100 at sites located every 10 kilometers (6 miles) across India, she said.