By CL Jose
THIRUVANTHAPURAM/July 11-2022: The repeated ‘pushing’ from the Reserve Bank of India (RBI) to improve lending in the home state seemed to have been taken unsympathetically by the Kerala-based banks so far.
The credit-deposit (CD) ratio of Kerala-based banks invariably stays below 50 per cent, meaning that these banks are taking out more than half of the deposits raised from Kerala to lend elsewhere in the country.
But interestingly, in the case of Federal Bank, maintaining a low CD ratio has been viewed ‘positively’ by a credit rating agency, which had a chance recently to revise the Outlook of Federal Bank’s Tier 2 bonds from Stable to Positive while affirming the rating at AA, which is considered reasonably high within the country’s banking industry.
India Ratings & Research (Ind-Ra), while elaborating on its key rating drivers has noted, “The bank (Federal Bank) has diversified away from Kerala where its share in the overall advances has moderated to 33 per cent in 2021-22 (FY22) against 42 per cent in 2015-16 (FY16).”
During the same period, the share of lending in Karnataka and Tamil Naidu rose to 9.7 per cent from 7 per cent and 14.3 per cent from 10 per cent, respectively.
As said before, on a national level, while Kerala accounts for only one-third of Federal Bank’s lending activity, close to two-thirds of its deposits is raised from Kerala, where the bank is headquartered and where it runs the largest number of branches.
RBI seeks higher CD ratio
During a state-level bankers’ committee (SLBC) meeting some time in 2020, the regional director, RBI, had raised concern regarding the decline in (the overall) the combined CD Ratio of all banks operating out of Kerala from 66 per cent as of March 2020 to 63.18 per cent as of September 2020 and to 63.79 per cent as of December 2020.
He had called upon State Bank of India (SBI), the industry leader, Federal Bank, the second largest bank in Kerala as also CSB Bank and Dhanlaxmi Bank to address the low CD ratio in the state.
“In this context, the senior RBI official has advised, in order to effectively monitor the performance of individual banks, a standing agenda item of bank-wise CD ratio to be introduced from the next meeting,” an SLBC note had said.
But, after two years from then, where do these banks stand now on CD ratio? While the ratio for CSB Bank fell by a sliver, between FY20 and FY22, from 38.43 per cent to 38.21 per cent that of Federal Bank fell from 41.59 per cent to 42.40 per cent.
Dhanlaxmi is the only bank that purportedly paid heed to the RBI plea as its CD ratio inched up, though by a bit, from 47.99 per cent to 48.17 per cent as of March end, 2022.
But South Indian Bank (SIB) that has been on a course exploring all avenues to wriggle out of its bad loan overhang, saw its somewhat decent CD ratio at 52.17 per cent more than two years ago, fall below 50 per cent, to 46.01 per cent as of March end 2022.
