THIRUVANANTHAPURAM: Was Kerala Bank created to become a large investor in securities — or a larger lender to the people it was set up to serve?
Kerala Bank's audited FY26 accounts raise that intriguing question.
The bank had about Rs49,189 crore of advances at the end of March, but its investment book stood at about Rs31,886 crore - equivalent to nearly 65 per cent of its loan book.
For a bank created around the cooperative movement, with farmers, small borrowers, cooperatives and other less-served sections at the centre of its stated lending purpose, the size of the investment book is difficult to ignore.
The question is not whether a bank should invest. The portfolio has to have investments too. Government securities and other permitted investments are an integral part of banking.
But why does Kerala Bank need an investment book of nearly Rs32,000 crore when its credit-deposit ratio is only around 69 per cent?
The bank had deposits of about Rs70,993 crore and advances of Rs49,189 crore at the end of March, which means a significant part of the deposit base was not deployed as loans.
What is stopping the bank from lending more has become a subject of curiosity among banking analysts. Many believe that capital could be the spoilsport here.
Capital adequacy under pressure
Kerala Bank's capital to risk-weighted asset ratio (CRAR) is only marginally above the 9 per cent regulatory requirement, wihch makes the capital question difficult to avoid.
Could the large investment book partly be a consequence of the bank's capital position?
A bank with limited capital cannot expand risk-weighted assets indefinitely. Depending on the type of security, investments can carry a different and sometimes lower capital requirement than loans. So, if capital is tight, investing funds can be easier on the capital ratio than expanding the loan book.
But that is precisely the question Kerala Bank needs to answer.
CEO Jorty M Chacko had already flagged the Investment Deposit Ratio as a potential pressure on profitability when the bank announced its provisional FY26 business numbers in April. The audit has now shown a Rs117.08-crore net loss for the bank for FY26.
The bank's large investment book also came under pressure from valuation/depreciation during the year. Whether the Rs434.54-crore charge was substantially driven by the movement in bond yields is worth examining
So the investment book is not merely large. It has also come with a significant charge in a year when the bank has ended up in the red. And this brings us back to the original question.
