The credit demand from the rural economy is picking up, but challenges still exist in terms of last-mile connectivity, linguistic issues and limited structured financial information of consumers living in these areas, bankers said at the virtual FICCI-IBA banking conference held on Thursday.

“From quarter 1 to quarter 2 (April-September), we have seen a huge jump in growth in home loans as far as tier-II and beyond cities are concerned…There is a 26% increase in the number of projects that are coming up for real estate in tier-II and beyond cities. The growth of home loans is more than 11%, which is better than the metro average. As far as State Bank of India is concerned, 60% of our home loan book of Rs 5.40 lakh crore comes from the tier-II and beyond cities, we are seeing a lot of traction there,” said Saloni Narayan, deputy managing director of retail business at State Bank of India (SBI).

She said there was more growth potential in rural areas as Covid-19 pandemic-led work from home model was becoming institutionalised and people were moving from metros to urban and tier-III and beyond cities. Given that the cost of living in these cities is lower, people are able to afford bigger houses.

Even as the demand for credit remained stable in rural economy, challenges in extending credit in these areas are unique, said Mahabaleshwara MS, managing director and chief executive officer of Karnataka Bank. “The most important problem is the rural connectivity and the bandwidth issue,” he said.

Further, there exists language barriers, lack of credit history, no income proof, lower financial awareness and limited structured data availability in interior parts of the country, Mahabaleshwara said. Banks need to invest in artificial intelligence (AI) and data analytics for drawing insights on load of unstructured data while also spending on cybersecurity and upgrading skill set of employees.

Banks should also partner with low-cost service providers, sourcing engines and fintech companies to extend credit to the financially unpenetrated part of the society. “We should admit that on our own, we will not be able to reach out to unreached,” he said, adding that Karnataka Bank has partnered with 12 fintech companies for generation of leads for both assets and liabilities.