Kerala banks using state as deposit raising platform?

CSB Bank’s lending in state less than one-third funds raised

KOCHI: Are Kerala-based banks averse to lending within the state or do they not find enough lending avenues here?

The lending by banks such as CSB Bank and Federal Bank within the state is less than one-third or half the deposits they have raised from the state, helping them lend the rest outside the state.

CSB Bank, formerly Catholic Syrian Bank, under its new masters, Fairfax India Holdings, seems to be gradually shifting its turf away from Kerala and focusing more on corporate lending outside the state.

There were reports that CSB had fairly large exposure to several Mumbai-headquartered companies from its Fort branch alone. As per the latest statistics available, only less than one-third of the funds raised from Kerala by the bank is being lent within the state.

The story is not much different with Federal Bank, by far, the largest bank in the God’s Own Country. The Aluva-headquartered bank too has been reducing its dependence on Kerala as far as lending is concerned.

Federal Bank though used to have 52 per cent credit deposit (CD) ratio in Kerala as of June end, 2014, currently ,this ratio has sharply fallen to 45 per cent, meaning that about 55 per cent of the funds collected from within the state by the bank is used to lend outside the state.

The exposure to companies such as Reliance Home Finance, IL&FS, Indiabulls Home Finance etc, has raised concerns among the shareholders, thanks to the apprehensions about their asset quality, and this has certainly dented the share price in the recent past despite the bank having reported record high quarterly net profit at Rs425 crore.

While South Indian Bank (SIB), the second largest bank in the state, has substantially increased its share of lending within the state from 50 per cent to 59 per cent (in relation to the funds raised from state) during the past four years, Dhanlaxmi has always tried to confine its lending to a good extent within the state itself though the bank has been conservative with a less than 60 per cent CD ratio.

The SIB chief executive officer (CEO) and MD, VG Mathew, recently made his stand clear that the bank was keen to trim its corporate lending, which has already dropped to just above 30 per cent, and this will hopefully give the bank the headroom to grow on retail, SME and agricultural lending.

Contrary to the deep-rooted notion that the merger of the State Bank subsidiaries, especially State Bank of Travancore (SBT), with SBI, in April 2017 would work against the interest of the borrowers in the state, the merged SBI has proved this otherwise.

The exposure of SBI and all its subsidiaries together used to be less than 42 per cent of the deposits raised in the state immediately prior to the storied merger, but this has improved to 48 per cent as of June end, 2019.

The way the CSB Bank lending is skewed under the new management led by Fairfax India Holdings with 51 per cent stake, indicates that it may not be too long before the bank will control its operations from outside Kerala.

The latest loan portfolio numbers available with businessbenchmark.news show that, of late, CSB Bank has used its close to 300 branches in Kerala as deposit collection centres rather than loan processing units.

The numbers say it all. As of June end, 2019, the bank had deposits amounting to Rs10,096 crore raised within the state, but the advances disbursed within the state as of that date amounted to a paltry Rs3270.54 crore – about 32 per cent of the funds poured by the state entities and individuals into the bank’s deposit kitty.

The value of loans disbursed within Kerala by the bank (cumulative) currently is Rs300 crore less than four years back though the deposits base in the state increased by another Rs2000 crore since then.

CSB Bank is busy preparing for its IPO, which will see the bank’s shares listed on both BSE and NSE, maybe within the year itself. Though the Prem Watsa led Fairfax Holdings holds 51 per cent in the bank, the promoter group will have to bring it down to 15 per cent in phases within 15 years.

 

 

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