HDFC Bank is morphing into a full-scale digital bank and is also exploring opportunities in the semi-urban and rural areas, says MD and CEO Aditya Puri. Edited excerpts of an interview with Business Today
ON CHALLENGES IN RURAL AND SEMI-URBAN AREAS
The challenges were in the areas of operations, product , sales and technology some three to four years back. We have now worked on these areas. As you know, the customers in these areas are quite disperse and loan ticket size is also very small. So you obviously needed to get the correct business model to work this on a profitable basis. You must realize that it is not by chance you find a virgin territory in a rural and semi-urban area, it must be difficult to go there. These are difficulties that are not easy to solve but in the last three-four years , we have managed to find a way out. Now we have models for semi-urban and rural areas which are profitable. Our brand is also phenomenal inside rural and semi-urban areas where 60 per cent of the population lives.
ON RISK MANAGEMENT IN RURAL AND SEMI-URBAN AREAS
We must understand that the essence of banking is in taking a calculated risk. The bank has never entered any product category without doing extensive pilot testing. So in semi-urban and rural areas , why it took us three-four years , we kept testing our products. We have also made our mistakes. But the mistakes are small and so nobody notices it. And we keep rectifying it. We never believe in sudden scaling up of operations. We don't go and say now retail is an opportunity and we are going to be largest. We will never bet the bank on anything. We tested each market for at least six months to an year , understood the pitfalls and took our losses , but they ( losses) were small. And only when we were confident of what we were doing , only then we started scaling it up. In our bank , the risk people or people handling risk do not report to the business . It only converges at my level.
SHARE OF RURAL AND SEMI-URBAN IN REVENUES
It is currently 15 per cent of the total revenues. It will be 30 -35 per cent in the next five years. It won't be 50 per cent ( that we said earlier ) because the ticket size is very small.
ON COMPETITION FROM NEW PAYMENT BANKS AND SMALL BANKS IN RURAL AND SEMI-URBAN AREAS
The fact is that semi-urban and rural areas are under-served by organized finance. There is scope for everyone. And this applies equally to financial inclusion. Each (bank ) one has a niche. Be it public , private or small banks, it will be a combination of all ( helping in the inclusion agenda) . It's huge task and more the merrier.
ON DIGITAL BANKING INITIATIVES
We have invested in data warehousing, analytics, outbound call centre , models for the credit , CRM (Customer Relationship Management), etc. Now we are in a position to launch our most comprehensive offering which will be in line with global standards whereby everything you can do physically , you can do virtually. We will also be to determine what you want based on transactions you have done as well as analysis of social media interactions. The whole war going forward is going to be over who owns the customers.
ON FUTURE OF ATMs
ATM usage should reduce as requirement of cash reduces and as e-commerce activity picks up in the country. The customers are already using Internet and mobile banking. In terms of transaction volumes, mobile banking has already gone up substantially. If I have to classify ATM as a channel, it is more in the physical world than digital. If I have to go to an ATM , then I can go to a branch as well. ATM is now being used increasingly for communication especially offering customized messages on new product offerings suited to a particular customer. We have got all the analysis of customers at our back end. We have the offers ready. So when you come to the ATM , the machine communicates with the customers.
ON THE FUTURE OF BRANCHES
The area that the branches will cover will become larger and larger. People feel safe in seeing a branch in their neighborhood. The branches will be more involved in acquisition, explaining complex products and also servicing if there is a problem . I believe the majority of dealing is going to happen online,. By complex products, I mean home loan , car loan where people need clarification or face-to-face dealing. You must understand that every customer is different. Some people want branches. Branches will become smaller in due course. Take for instance , we now have two man branches in the rural and semi-urban areas.
ON PEOPLE INTENSITY IN BANKING
Certainly, people intensity in banking will reduce as digital banking grows. The human contact will come down. Once you introduce digital signature , which is valid, the people can send documents online.
ON BENCHMARKING PERFORMANCE GLOBALLY
Wells Fargo is a good example for cross sell as well as virtualized banking. There is a Bank Mandiri in Indonesia , which is very good for the small ticket items loans. There are banks in Hong Kong like Hang Sang Bank which are very good in terms of returns. So depending upon each segment, we compare ourselves with whoever is the best in class.
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