"Man, they have a lot of banks around here."

So said my Foolish colleague Paul Elliott as we barreled down a narrow street in India with the Mario Andretti of Mumbai taxi drivers behind the wheel. And he was right -- there were a heckuva lot of glowing bank signs: State Bank of India, ICICI Bank (NYSE:IBN), and even Citigroup (NYSE:C).

But I was more concerned with swerving around the large black cow straight ahead of us.

Thankfully, we missed the cow
Eventually, we got to the hotel and reflected on the ride. Yes, it'd been dangerous. Yes, if any of us had been driving we'd still be trying to get out of the airport parking lot. And yes, there were a lot of bank signs -- evidence of the fact that the retail banking industry -- like the middle class -- is growing like wildfire in India.

But there had been a conspicuous absence among the myriad bank signs: HDFC (NYSE:HDB), the nearly $10 billion bank that's been growing at more than 35% annually for the past decade. It was also the bank we'd come to Mumbai to meet.

But where was it?

Enter Sashi Jagdishan
We got our answer when we met HDFC head of finance Sashi Jagdishan. Jagdishan revealed that HDFC is pursuing much of its growth in non-metro, underserved markets. If that sounds like a familiar plan of attack, it's because we've seen it employed here in the United States by Wal-Mart (NYSE:WMT) and Hibbett Sports (NASDAQ:HIBB) to much success.

But HDFC hadn't always planned to go this route. According to Jagdishan, when the bank recently applied for 220 branches, their regulator rejected the 70 proposed branches in metro areas and approved only the 150 branches in semi-urban and rural areas -- areas where HDFC officials originally believed there would be limited growth. See, for the most part, wealth in India is concentrated in a few areas. These tend not to be the areas that are underserved by financial institutions.

So what did HDFC do? "Rather than sulk," Jagdishan said, "we took advantage."

The big payback
After looking at the situation, HDFC realized that there was a big opportunity in these smaller markets. While the folks there had smaller sums to save, they were still looking for entrepreneurial loans and tailored investment products. HDFC saw that it could offer these clients services that better fit their needs at lower costs, with little to no competition. In other words, it had the potential to be the "first-mover" in the space.

Which is precisely what it's done.

Today, 62% of HDFC's branches are in non-metro markets. These branches deliver 36% of retail deposits and 48% of retail loan activity. Moreover, as the Indian economy grows, more money is flowing into these areas. And since HDFC was the first-mover and has been making its accounts extremely sticky through programs such as online bill pay, these customers seem likely to stay with the bank even as competition increases.

Taking from the innovation page
But a clear strategy in the rural markets isn't all that HDFC is doing to differentiate itself in the Indian banking sector. The company also launched its own Six Sigma initiative in 2003. The program, originally conceived by Bill Smith at Motorola (NYSE:MOT) and made famous by its success at General Electric (NYSE:GE) under Jack Welch, has helped the company improve its efficiency and customer service -- two areas where HDFC repeatedly notes that it has an opportunity to differentiate itself from -- and enjoy a competitive advantage over -- the tired state banks.

In fact, HDFC has a number of initiatives, including its accelerated cash management and vendor/supplier supply-chain payment capabilities, that have made it a first-mover in the Indian banking sector and propelled it along its great growth trajectory.

The Foolish bottom line
Motley Fool Global Gains advisor Bill Mann recommended HDFC to his subscribers recently -- and for good reason. With smart management, a wide market opportunity, and a somewhat overlooked stock (only one U.S. analyst covers HDFC, and that coverage was initiated just last week), it's precisely the kind of foreign growth stock American investors should be considering for their portfolios.

But there are a lot more picks where HDFC came from. Bill recently returned from a tour of India and China with a healthy number of stock ideas. If you'd like to learn more about investing in these fast-growing economies or see what he recommends next, click here to join Global Gains free for 30 days. There is no obligation to subscribe.

Tim Hanson owns shares of HDFC Bank. Wal-Mart is a Motley Fool Inside Value recommendation. The Motley Fool has a disclosure policy.