Introduction
HDFC Bank is one of the leading private sector banks in India. It started its operations immediately after the banking sector was opened for private investment during the early 1990s. Soon after, the bank has expanded its operations across the country. Being promoted by HDFC, a leading provider of housing loans, the bank got enough funding to expand its operations at a faster pace. The bank has emerged as one of the most profitable banks in India and the most financial institution for investors. HDFC Bank has expanded its operations into other niche areas of banking like corporate banking, wholesale banking, and investment banking. Most of the banks operations were based in the metro and other major cities of the country. Concentrations of its operations in major cities helped the bank in limiting its operating expenses to a great extent and maintain a high profit ration when compared with other banks.
The management of HDFC Bank have always preferred to concentrate the operations to major cities as they considered the small towns and other rural areas to be unprofitable. India was still a low country and the per-capita incomes of people living in the rural areas were significantly lower than that of people living in metros and major towns. Since the bank’s operating costs in maintaining its advanced branches and ATMs were higher, its management considered starting of bank’s operations in rural areas to be a drag on the company’s profits. However, India’s central bank has started a new policy that made it compulsory for all the banks to operate a significant percentage of their branches in rural areas. A new government scheme called the ‘Jan Dhan Yojana’ started by the Indian government had also mandated the banks to open branches in rural areas (The Economic Times). Moreover, the rising disposable incomes of people living in rural areas have also opened new opportunities for banks to start their operations in rural areas. Rather than implementing the same strategy it followed in urban areas, the bank’s management decided to come out with a new operations management strategy to expand the bank’s operations in the rural areas.
Problems Faced by Banks to Operate in Rural Areas
Despite the rising disposable incomes of people living in rural areas, banks faced a lot of problems in operating in rural areas. Problems faced by banks while operating in rural areas demand special adjustments to their operations strategy. Some of the major issues that need to be considered while framing an operations strategy for starting operations in rural areas are:
Small Size of Indian Villages
Unlike in the west, the size of Indian villages is very small. Indian has an estimated 500,000 villages that are scattered across the nook and corner of the country. Most of the Indian villages have less than 500 people living in them. Small size of Indian villages makes them unviable markets for big banks to start their operations.
Poor Literacy Levels
Indian villages still have low literacy levels when compared with their western counterparts. Nearly 30 percent of Indians were not literate and hence cannot read and write. People living in Indian villages are not well versed in English and hence could not properly read the information provided by banks on their brochures and other documents.
No Power
Operating of banks and ATM requires continuous supply of power. A significant number of Indian villages have irregular supply of power. According an estimate by the government of India, a significant number of Indian villages do not have any supply of power. As the modern banks like HDFC Bank totally rely on online banking and ATM transactions for conducting their banking operations, lack of power poses a significant challenge for expanding its operations to the rural areas.
Poor Connectivity
Most of the Indian villages are poorly connected by roads and railway tracks. Hence the connectivity to rural areas is still very low. Poor connectivity presents a significant challenge for Banks to expand their operations in the rural areas.
No Communications Facilities
Indian villages also have very poor communication facilities when compared with villages in the west and other developed South Asian Nations. Many villages are still not covered by the fibre optic cable network and hence could not be have telephone and internet facilities. Lack of power supply to Indian villages further accentuates the problem as it is difficult to charge the batteries of portable electronic devices like mobile phones and tablets.
Low Technology Awareness
Banks in South East Asia and Europe have expanded their operations in the rural areas by taking advantage of modern technology. Banks mostly relied on deploying ATMs in the rural areas to expand their reach. As many Indian villagers were never exposed to any modern technology tools, they could not use ATMs. Banks in African countries on the other hand have relied on money transfers through mobile phones to expand the reach of banking. But a number of people living in Indian villages have never used mobile phones and hence did not know how to operate mobile banking applications.
Lack of Infrastructure
Like many commercial organizations which have their presence spread across the country, banks too operate from rented premises. Building their own infrastructure in all the areas where they had their operations is unviable due to the heavy initial costs involved. But many Indian villages do not have well developed infrastructure facilities like buildings and roads. Hence, banks find it difficult to find a place from which they could start their operations.
Scarcity of Skilled Manpower
Operations Strategy for Expanding its Operations in Rural Areas
All the above problems that were highlighted above make it compulsory for HDFC Bank to come out with an alternative strategy to expand its operations in the rural areas and create an effective and efficient workplace. Below are some of the tips for developing an alternative operations strategy for successfully expanding its operations into rural areas:
Establish Banking Hubs
Unlike the western banking system which has traditionally followed by the unit banking system, Indian banking system is branch based. All the banks run their operations through multiple branches that are present across the country. As the lack of proper infrastructure makes it difficult for banks to set up branches in each and every small village of the country, HDFC Bank should think about setting up banking hubs in smaller towns. These hubs should be selected in such a way that they are well connected to the major cities through road or rail. Care should also be taken that they have all the communication facilities like telephone and internet.
Setting up of banking hubs in the place of multiple smaller branches will help in easily coordinating its activities in villages. Villagers who regularly travel to places where the banking hubs are situated could do the transactions on their own. Alternative strategies could be later developed for reaching other sections of the rural population.
Enter into Tie-up with India Post
Since it was difficult for HDFC Bank to expand its operations on its own, it is better for it to enter into tie-ups with organizations that already have a significant presence in the rural areas. One organization that has a significant presence across the length and breadth of the country is Indian Post. With a total of 154,866 post offices spread across the country, India Post could reach a large number of villages easily. Entering into a tie-up with India Post could make it easy for developing an efficient supply chain for its services.
Use Customized ATMs
As most of the people living in the rural areas are not well versed with the modern technology, banks need to customize its ATMs that will be deployed in rural areas. Rural ATMs that can give voice instructions for customers while operating on them, ATMs with touchscreens displaying symbols rather than text, and ATMs with backlit keyboards can make it easier for villagers to operate them. HDFC Bank could enter into tie-up with ATM manufacturers like Diebold to manufacture the customized ATMs suitable for its rural operations.
Use Cash Deposit Machines
Use of sophisticated technology to successfully expand into rural areas need not be limited to the use of ATMs. HDFC Bank could also consider using other options like mobile cash deposit machines. Cash deposit machines do not take the physical cash and deposit it with themselves. Instead they record the transaction in their memory and give a receipt to the customer regarding the cash withdrawn or deposited from their bank accounts. Cash deposit machines use biometric identification technology to retrieve patient details like fingerprints and iris scans. Since the biometric data of a customer is impossible to be duplicated, it provides a viable alternative to the practice of taking the signature of the customer.
Cash deposit machines are more suitable for rural areas than ATMs as they can operate on a battery and do not need any communication systems to function. Modern cash deposit machines are portable and can be taken from one place to the other on the back of bicycle or a motor cycle. A major drawback of cash deposit machines over the ATMs is that they need to be carried from one place to the other by a person. This will require a skilled person for operating each machine. Paying salaries to the persons who carry the machine from one place to the other also entails extra cost to the bank.
Enter into Tie-ups with Independent ATM Operators
Operating of ATMs in rural areas is not a viable option for many banks due to the small size of markets there. In order to solve this problem, India’s central bank has recently allowed independent companies to own and operate ATM machines (Money Today). These ATM machines accept cards linked to all the major payment networks like Visa, MasterCard, and RuPay (limited to India). Entering into tie-ups with these independent ATM operators will save HDFC Bank a lot of money and resources in setting up of ATMs in rural areas. The cost of maintaining tie-ups with these independent ATM operators too is nil as they charge the customers per each transaction done through their ATMs.
Use Mobile Banking
Mobile banking is proving to be the best way for the banks to reach the rural areas. Many banks in African countries with poor infrastructure and technological penetration have used mobile banking to reach the rural customers. Mobile banking makes it possible for customers to complete their banking transactions without the need to visit the bank’s premises. Mobile banking transactions are also cheaper when compared with conventional transactions through the bank’s branches and ATMs as physical movement of cash is not involved in mobile banking. While deploying mobile banking on a large scale, HDFC Bank should also make appropriate changes to the mobile banking technology that is used in urban areas.
A key challenge for the deployment of mobile banking in rural areas is the inability of villagers to understand the applications developed on the English language. HDFC Bank should first focus on developing customized mobile applications that communicate with the customers in their native languages. Mobile banking applications that could communicate with the user orally could also be very helpful in making mobile banking accessible in rural areas.
Enter into Microfinance Institutions
Microfinance is one of the major success stories in the Indian finance sector. A number of major microfinance institutions operate across the country. As these microfinance institutions mostly lend to poor labourers and farmers in rural areas, they have very high penetration levels in villages. Some major microfinance institutions in India like Bandhan and SKS Microfinance have thousands of branches in all the major states of India. Microfinance institutions also employ a large number of employees who have gained a lot of experience in dealing with uneducated village customers. Just like in the case of India Post, entering into a tie-up with microfinance institutions will help HDFC Bank in expanding its reach in the rural areas faster. Employees of Microfinance institutions could be utilized for opening new accounts and for maintaining cash deposit machines. Tie-ups with microfinance institutions will make it possible for HDFC Bank to keep its operating costs in rural areas under control as need not pay the salaries to the employees of microfinance institutions.
Get the Required Manpower
Hiring the required manpower for running the operations in rural market is one of the major challenges that should be overcome by HDFC Bank to successfully expand in the Indian rural market. Getting the required manpower to work in the rural areas has proven to be difficult in the past as many young professionals were unwilling to work in rural areas. Lack of skilled manpower based in the rural areas further compounds the problem. Some of the tips for hiring the manpower required for expanding its operations in the rural areas are:
- Recruit people who are not highly qualified from urban areas who are willing to work in the rural areas.
- Recruit candidates from rural areas with basic secondary education and train them in handling of basic banking operations.
- Provide the rural employees of the bank with continuous training that will help them in improvement of skills.
- Provide the employees working in rural areas with an equal opportunity to get promoted and grow in the bank.
- Provide the employees in rural areas with all the benefits like an unbiased appraisal system.
Tracking the Performance of Rural Operations
Tracking the performance of its operations in the rural areas is crucial to ensure that they go without any obstacles. Tracking the performance will also help in identifying any problems that could be rectified. HDFC Bank can follow ‘Earned Value Management’ project management technique for tracking its operations in rural areas. Earned Value Management (EVM) involves measuring the performance in an objective manner (Vanhoucke 17). The technique has three important components, viz. scope, schedule, and costs.
Since the operations of HDFC Bank in rural areas involve keeping its costs under strict control and working under a limited scope, EVM is the most suitable project management technique for tracking the performance of its rural operations. For successfully using the EVM technique, HDFC Bank needs to first prepare a project plan that identifies the work to be finished. It should also prepare a valuation of the planned work and set of ‘pre-defined earning rules’ for its operations in the rural areas.
Conclusion
Entering the rural finance market poses a significant operations challenge for a bank like HDFC which has traditionally operated in urban areas. The bank needs to overcome a number of significant challenges in the form of limited market potentiality and poor infrastructure facilities to successfully tap into the growing rural market for financial services. Current operations management strategies followed by the bank in urban areas will not be able to successfully meet the requirements of the rural areas. HDFC Bank needs to develop a new operations management strategy that is completely customized to the needs of rural areas. The above suggested tips will help the bank in developing an effective and efficient workplace suitable for rural areas. It should also utilize the above suggested project management tools for tracking the performance of its operations in the rural areas.
Works Cited
Money Today. Pay-and-use ATMs. Mar. 2012. 14 Nov. 2014. <http://businesstoday.intoday.in/story/atm-rural-areas-non-bank-entities-rbi-nod-automated-teller-machines/1/22789.html>.
Rebello, Joel. New private banks upbeat on rural expansion. Mint. 28 Aug. 2013. Web. 14 Nov. 2014. <http://www.livemint.com/Industry/jY4qrzLL14GoR9qvMsFgXL/New-private-banks-upbeat-on-rural-expansion.html>.
The Economic Times. SBI takes lead in opening bank accounts under Jan Dhan Yojana. 13 Sept. 2014. Web. 14 Nov. 2014. <http://economictimes.indiatimes.com/industry/banking/finance/banking/sbi-takes-lead-in-opening-bank-accounts-under-jan-dhan-yojana/articleshow/42287996.cms>.
Vanhoucke, Mario. “Earned Value Management.” Integrated Project Management and Control Management for Professionals (2014): 17-31. Print.
Aristotle. Poetics. Trans. S. H. Butcher. The Internet Classics Archive. Web Atomic and Massachusetts Institute of Technology, 13 Sept. 2007. Web. 4 Nov. 2008. ‹http://classics.mit.edu/›.
