Kerala Bank awaits RBI nod to raise Rs500cr sub-debt from PACS

Plans underway to double gold loan portfolios from Rs5000cr to Rs10,000cr

CL Jose

THIRUVANANTHAPURAM: It’s more than three months now since Kerala State Cooperative Bank (KSCB) or Kerala Bank has sought the approval from Reserve Bank of India (RBI) to raise Rs500 crore as long-term loans or subordinate debt (sub-debt) from the primary agricultural cooperative societies (PACS) to shore up the capital.

Kerala Bank’s capital adequacy ratio (CAR) has been hovering around 9.7 per cent, just 70 basis points above 9 per cent, the minimum required by the bank. 

Disbursal of further loans could see the CAR of Kerala fall below 9 per cent, which is not permissible under the capital norms prescribed by the regulators. 

PACS is second largest shareholder

Since PACS is the second largest shareholder of Kerala Bank after the Government of Kerala (GoK) that owns close to 50 per cent of the bank, the management of the bank has approached PACS to chip in the additional capital in the form of subordinate debt, which qualifies for Tier 2 capital.

Earlier too, Kerala Bank had raised long-term loans from PACS to strengthen its capital base. “This time, the long-term loans have been invited at 9.1 per cent interest,” said Jorty Chacko, the chief executive of the bank while talking to businessbenchmark.news in an exclusive interview in Thiruvananthapuram.

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 “It’s surprising that RBI has been sleeping on the approval, which is quite crucial for the bank at this juncture for its forward journey,” a a leading analyst told businessbenchmark.news.  

Maybe, RBI is invoking the 5 per cent NPA ceiling condition to disallow the Kerala Bank from raising capital from PACS. If RBI elects to stick on to the condition on NPA, Kerala Bank will find itself caught in a difficult situation, as its NPA currently stays far above that ceiling, at 11.5 per cent.

Gold loan push

Jorty Chacko has chalked out bigger plans for Kerala Bank, the most ambitious being his dream to take its loan book to Rs1 lakh crore within three years. But the biggest challenge to that plan would be the thin CASA book (current account & savings account), which is a low 12 per cent.

Small CASA means the low volume of low-interest funds which will push up the cost of funds that could essentially reflect on the lending rates of a bank.

Kerala Bank is currently working on ways to double the gold loan book from the present Rs5000 crore to at least Rs10,000 crore in the mid-term. Each branch is likely to be assigned with separate targets so that the magic number can be easily achieved as Kerala Bank runs around 800 branches across the state.