Kerala Bank may downsize Govt bonds, to boost lending by Rs6,000cr

THIRUVANANTHAPURAM: The lack of adequate capital could hamper the loan growth the Kerala State Cooperative Bank (KSCB), also known as Kerala Bank, hopes to achieve.

As is known, loans, or any assets for that matter, need to be backed by certain amount of capital prescribed by the respective regulators in relation to the risk weight attached to such loans.

It’s about eight months since the bank has sought the green signal from the 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 base.

PACS is 2^nd largest shareholder

PACS, as a group, is the second largest shareholder in Kerala Bank, and hence it’s perfectly reasonable to seek capital support from them as had been done by Kerala Bank earlier too.

 (Subordinate debt can function as Tier 2 capital for the bank)

According to informed sources, RBI doesn’t take Kerala Bank’s request sympathetically due to its high non-performing assets (NPAs), which hover around 12.45 per cent (as of March end), far higher than the stipulated ceiling of 5 per cent.

CAR at 10.36%

 Kerala Bank is currently (as of March end) operating on a capital adequacy ratio (CAR) of merely 10.36 per cent against the minimum of 9 per cent stipulated by the Reserve Bank of India (RBI) for cooperative banks – slightly less than the scheduled commercial banks (SCBs).

In fact, the handsome profit of Rs248 crore earned by the bank for the financial year 2023-24 (FY24) has obviously shored up the bank’s capital adequacy ratio (CAR) from 9.7 per cent to the present level.

Rs6,000cr loan push

Talking to businessbenchmark.news a few months ago, Jorty  Chacko, the chief executive officer (CEO) of the bank, had said the bank intended to expand its loan book by about Rs6,000 crore during the current financial year.

“We need at least an additional Rs500 crore as capital to support this loan growth we intend to achieve this year, and we have been waiting for the RBI nod for the same,” Chacko had said.

Govt may infuse capital

But now as the things stand, government, the largest shareholder in Kerala Bank with about 50 per cent holding, may have to bring in the additional capital.

Kerala Bank, though has about Rs64,000 crore sitting in its books as deposits, down from about Rs70,000 crore a year ago, the loan book is just Rs45,540 crore whereas the bank has parked close to Rs30,000 crore in government securities, state and Central government, that hardly fetch about 7 per cent against its cost of fund of 6.8 per cent.

Mind you, the bank’s loans, on an average, yield 10.3 per cent. According to sources close to the bank, Kerala Bank plans to prune the size of the investment book by about Rs1,500 crore this year, and increase the loan book by about Rs6,000 crore.

For all these, it’s essential for the bank to shore up its capital base.