Is Kerala becoming ‘advance’ market for Federal, CSB, Dhanlaxmi?

SIB remains an ‘outlier’ with its deposit growth exceeding advances over past two years

CL Jose

KOCHI: For the four Kerala-based banks such as Federal Bank, South Indian Bank (SIB), CSB Bank, and Dhanlaxmi Bank, the state has historically been more of a deposit market.

While all these nearly 100-year-old banks have different growth stories, the Kerala State Cooperative Bank (KSCB), also known as Kerala Bank, has witnessed a decline in its deposits during the period under review – between FY22 and FY24.

While a big chunk of the deposits of the aforesaid four banks are generated from Kerala, most banks deploy only less than half of these deposits raised from the state for lending within the state.

More seriously, this has invited in criticism from the Reserve Bank of India (RBI),which has time and again called upon these banks to increase lending within the state and thus improve the credit-deposit (CD) ratio in the state.

But is the trend observed in the growth pattern of deposits versus advances reversing in the state?

Deposit growth slowing vs advances

A close analysis of the Kerala (business in Kerala) balance sheets of these banks reveals that their deposit growth, barring that of South Indian Bank (SIB), in the past two years has lagged far behind their respective growth in advances.

Is Kerala slowly becoming an ‘advance’ state for these banks, thereby breaking the age-old stigma of being merely a deposit market for them?

businessbenchmark.news has researched the loan growth and deposit growth that took place within Kerala market during the past two years since March 22 (FY22).

Looking at the numbers released by Federal Bank, the largest among these banks, while bank’s deposit base during this period grew by 22.21 per cent from Rs1,18,396.53 crore to Rs1,44,669.54 crore, advances increased faster at 32.67 per  cent.

In the case of CSB Bank that underwent a tectonic transformation following the entry of Prem Watsa-led Fairfax Holding as a majority shareholder in the bank, while the deposits grew by 14.47 per cent since FY22, the growth in its advances outpaced that of deposits, at 22.84 per cent.

In the case of Dhanlaxmi Bank, the smallest among all these banks, the growth in its advances was far more than double that of deposits, at 30.41 per cent against the deposits growth of a mere 13.15 per cent.

SIB an outlier

But as we discussed at the outset, South Indian Bank (SIB) has been an outlier among its Kerala counteroparts during this two-year period, which was, to an extent, deliberate as the bank opted to focus more on cleansing its non-performing assets (NPAs) while staying cool to growth.

While SIB’s deposits grew from Rs56,308.84 crore to Rs62,588.13 crore between FY22 and FY24 at a modest  rate of 11.15 per cent, the advances trailed the deposit growth, logging just 9.29 per cent.

Picture different

But the picture is different for the country’s banking system, which struggles to maintain a deposit growth that matches the sharp growth in advances.

The banking system at large maintained a robust pace of credit growth significantly in FY24. A State Bank of India (SBI) report stated that bank deposits in FY24 increased by only 13.5 per cent as against loan (credit) growth of 20.2 per cent.

The Reserve Bank of India (RBI) has expressed concerns about the gap between credit and deposit growth.  The RBI has also noted that credit growth has outpaced deposit growth in recent years and has advised banks to be watchful about asset quality, deposit growth