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India's HDFC sees signs of a rural revival

Mumbai

HDFC Bank Ltd, India's most valuable lender by market capitalisation, sees tentative signs of a revival in rural areas at a time when the wider economy is sputtering.

"The recent loan outreach programmes underway in rural areas have given us the sense that the consumption in rural and semi-urban areas is turning more positive," HDFC Bank executive director Kaizad Bharucha said last week.

As of end-September, 52 per cent of the bank's outlets were in rural and semi-urban India, a part of the economy that accounts for at least half of the national output.

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Prime Minister Narendra Modi's government has unveiled several steps to boost the economy, which is growing at its weakest pace in more than six years, including a surprise US$20 billion corporate tax cut.

The Reserve Bank of India is expected to cut interest rates again this week, after Friday's report that GDP growth slowed to 4.5 per cent in the September quarter.

For HDFC Bank, the weaker economy had led to a slowdown in loan growth, which eased to 15 per cent in the September quarter from 23 per cent a year earlier. But it remained healthy compared with the overall banking system which saw credit growth slowing to a two-year low just above 8 per cent.

"As a bank we are well-positioned to offset a slowdown in either the consumption or investment side as we are present across the spectrum," Mr Bharucha noted. "The demand for credit is not going away. It may just be subdued for a period of time."

He's also cautiously optimistic about the outlook for corporate investment. BLOOMBERG