All five banks operate at sub-50% CD ratio in Kerala
By CL Jose
THIRUVANANTHAPURAM/October 30-2022: Kerala’s own banks seem to be more loyal to rest of Kerala, at least when it comes to lending.
Counterintuitively, most banks from outside the state and operating in Kerala’s banking space, especially public sector banks (PSU Banks), lend in the state more than they raise, or even multiples of what they raise as deposits from within Kerala, in some cases.
The fact is that the Kerala-based banks deploy majority of deposits raised from the state elsewhere, leaving the key responsibility of lending in Kerala to other banks with operations in the state.
Of course, the Kerala-based banks will certainly have thier own cogent commercial reasons to justify thier stance on this.
Kerala has about 6,500 branches of 12 public sector banks, 20 private sector banks, two small finance banks (SFBs) and the Kerala State Cooperative Bank (KSCB) operating within the state.
The statistics available on the banking operations in the state reveal that the Kerala-based banks enjoy much lower credit-deposit ratio (CD ratio) in the state compared with most other non-Kerala banks operating in the state.
Importantly, the five Kerala banks figure on the list of ten banks operating at the lowest CD ratio in the state.
CD ratio below 50 pc
A CD ratio less than 50 per cent means more than half of the deposits raised from the state is deployed outside the state.
While CSB Bank operates at a CD ratio of 39.36 per cent, up from 33.38 per cent two years ago, others in the list are Federal Bank (41.43 per cent), South Indian Bank (48.63 per cent) and Dhanlaxmi Bank (49.74 per cent), as of June end, 2022.
The latest entrant to the group of Kerala banks, ESAF Small Finance Bank, too follows the same trend when it comes to lending within the state, operating on a CD ratio of 49.24 per cent.
While the lowest on the chart is Bandhan Bank with a CD ratio of 5.70 per cent, the ‘highest’ on the CD ratio chart is Bank of Maharashtra with a ratio of 1,174 per cent, which means the bank has lent in Kerala more than 11 times what it raised from Kerala as deposits.
Interestingly, all public sector banks operating in Kerala are ahead of their Kerala-born counterparts on the CD ratio front.
RBI expresses concern
During the 132nd meeting of the state level banking committee (SLBC) in September 2020, the Regional Director of RBI had raised concern regarding the decline in the combined CD ratio from 66 per cent as in March 2020 to 63.18 per cent as in September 2020, and further to 63.79 per cent thereafter towards December 2020.
However, this has improved since then to 66.40 per cent as of June end, 2022 though that of the private sector banks at 57.73 per cent, lags far behind public sector banks.
“The State Bank of India (SBI), the industry leader and Federal Bank, the second largest bank in Kerala as also CSB Bank and Dhanlaxmi Bank need to take concrete measures so that the good work done by other banks for the state of Kerala is not lost,” the RBI official reminded the banks.
District-wise CD ratio
Following the recommendations of the Expert Group, headed by YSP Thorat, which studied the nature and magnitude of the problem of low CD ratio across States/Regions, suggestions were issued to overcome the problem.
The Government of India examined and accepted the Group’s recommendations with certain modifications. Accordingly, it has been decided that districts having CD ratio less than 40 per cent should be monitored by a special sub-committee of District Level Co-ordination Committee (DLCC), working under SLBC.
