‘Kerala Bank’s ‘bad loans’ unsustainable at 30 pc’

By CL Jose

Bank sits on abysmally low CASA below 10 pc

KOCHI/April 12-2022: The latest selected statistics available on Kerala Bank show that close to one-third or 30 per cent of its loans have turned bad or NPAs as on December 31, 2021, according to data provided by SLBC.

The extent of provisioning required against these NPAs is going to determine how the bottom line of the bank will look like for 2021-22. According to accounting experts, NPAs above 15 per cent is unsustainable.

Kerala Bank had earlier projected that it would close the year 2021-22 (FY22) with a net profit of Rs150.26 crore and the year 2022-23 (FY23) with a much larger net profit of Rs352.07 crore.

In comparison with the large volume of NPAs of Kerala Bank, the combined banking system operating within the State carries 8 per cent NPAs, whereas the NPAs lying with the PSU banks within the state are estimated to be far less, at 4 per cent of the total loans.

The overhang of NPAs mandates the banks to set aside commensurate volume of provisions, which invariably weighs on the profitability of banks.

The heavily NPA-ridden cooperative banking system in the state, which, of late, is facing tough political as well as social resistance to revenue recovery proceedings against the delinquent loans, is now said to be left with the proverbial Hobson’s Choice.

While Kerala Bank has piled up NPAs to the tune of Rs12,403.96 crore against a loan book of Rs41,544.57 crore as of December end, 2021, the cooperative banks in Kerala as a segment, carry Rs20,324.61 crore bad loans against a combined loan portfolio of Rs53,032.42 crore, which works out a worrisome NPA ratio of 38.33 per cent.

A peep into FY21

Though Kerala Bank’s gross NPAs (bad loans) stood at 14.47 per cent and the net NPAs at 10.87 per cent as per the published annual report for the previous financial year 2020-21 (FY21), the auditors had flagged the prospects of Kerala Bank having swept under the carpet a substantial amount of bad loans in order to paint the bank in a good light by showcasing inflated profitability.

The bank that announced Rs61.99 crore operating profit for FY21 was tight-lipped on the net profit for the year. Though Gopi Kottramurikkal, the president of the bank, has announced big growth plans in the coming years, the bank could certainly  boast one ot the most ‘houseful’ director boards with 19 members and a Board of Management housing 11 members.

The FY21 financials of the bank has raised certain key questions. Analysts are keen to know what steps the Kerala Bank management, and more seriously, Reserve Bank of India (RBI), have taken after the bank’s auditors raised serious doubts and ‘qualified’ the FY21 financials.

Kerala Bank may need an immediate course-correction in order to stay afloat, according to financial analysts who browsed through the key numbers and financial ratios provided by businessbenchmark.news.

 Abysmally low CASA

While most banks are on a race to amass maximum number of current accounts and savings accounts (CASA) in order to bridle down their cost of funds, Kerala Bank seems to have chosen to stay cool about that as is manifested by its current CASA ratio.

Even as Kerala Bank enjoys one of the highest NPA numbers in the country’s banking system, the apex bank that was formed by cobbling together 13 district cooperative banks (DCBs) in 2019, now boasts one of the lowest CASA ratios too, at 9.42 per cent of the total loan book.

With a total loan book size of Rs67,932.06 crore, Kerala Bank’s current and savings deposits account for only Rs6,400.40 crore, at just 9.42 per cent, which needless to say, keeps the bank’s cost of funds far higher compared with those with larger CASA deposits.

With an average CASA ratio of 36.92 per cent for the banking system in Kerala, most banks are placed above 33 per cent on this ratio, which is key in maintaining a competitive cost of fund regime.

Among the Kerala-based banks, CSB Bank enjoys 33,66 per cent CASA; South Indian Bank (SIB) has 33.21 per cent CASA deposits; Federal Bank is at 36.94 per cent, and Dhanlaxmi Bank’s CASA was at 34.30 as of March 31, 2022.

The average CASA deposit ratio for the banking system operating within Kerala was at 36.92 per cent, whereas that of the PSU banks was at a much better 41.64 per cent as of December end, 2022.

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