Plastic money gains acceptance in rural India

HDFC Bank offers credit cards in areas with population of less than 10,000

Plastic money is gaining acceptance in rural India. HDFC Bank, the second largest private lender in the country, has started offering credit cards even at its rural branches. Bank branches in areas with a population of up to 9,999 are classified as rural branches.

On an incremental basis, nearly 25 per cent of HDFC Bank’s credit cards are now sourced from rural and semi-urban markets even as 40 per cent of Indian population is believed to be in want of a bank account. The bank has started setting up point-of-sale (POS) terminals across merchant establishments in these geographies to encourage customers to use credit cards.

“The potential for growth is significantly high in smaller markets since the penetration of credit cards in these areas is relatively low. In the last couple of years, we have increased our investments on the acquisition side and are expanding the number of POS terminals in rural and semi-urban locations,” Parag Rao, senior executive vice-president and business head for credit cards and merchant acquiring services at HDFC Bank, told Business Standard.

He added HDFC Bank was now offering credit cards, along with other retail banking products across most of its branches in rural and semi-urban centres. “We aim to cover all locations where we have branches. All our rural and semi-urban branches, barring a few that have started functioning recently, are offering credit cards to the bank’s customers,” Rao said.

The bank currently has more than half of its 3,062 branches in rural and semi-urban markets. The private lender opened 518 branches in 2012-13 of which 459 were in these markets. HDFC Bank is currently the largest issuer of credit cards in the country with a portfolio of 6.53 million cards. On an average, it issues around 70,000 cards every month.

Most banks and credit card companies currently do not offer credit cards in rural geographies. However, lenders are exploring opportunities to grow this business outside metro cities.

“Smaller markets are becoming important both in terms of card acquisition and spend. The credit card business is no longer restricted to the top eight Indian cities. While the number of POS terminals have not increased significantly in smaller towns, e-commerce is gaining popularity. We find many of our customers from these centres are increasingly using their credit cards for online transactions,” said Jairam Sridharan, senior vice-president and head of consumer lending and payments at Axis Bank. The private lender is yet to expand its credit card business in rural India but nearly 30-40 per cent of its incremental card sourcing is currently from locations outside the top eight Indian cities. The bank has a portfolio of 1.1 million credit cards.