Why Kerala’s own banks lend less in state?

Four banks’ combined CD ratio in state is just 49 pc


KOCHI: For the Kerala-based banks, they seem to genuinely believe that the ‘grass is greener’ outside their state.

For these banks – Federal Bank, South Indian Bank (SIB), CSB Bank and Dhanlaxmi Bank, Kerala is more of a fund-raising platform with the lending business mostly taking place outside the state.

The numbers as of December end, 2019 show that while these four banks together raised about Rs1,54,732 crore ($20.77 billion) from Kerala, their lending in Kerala was pegged at Rs75,381 crore, which is only little more than 48 per cent of the deposits they raised from the state.

But of course, the credit-deposit (CD) ratio among these four banks varies a bit with CSB Bank enjoying the lowest at 33.91 per cent, whereas SIB boasting the highest at 58.72 per cent with Federal Bank and Dhanlaxmi staying at 44.82 per cent and 53.17 per cent respectively.

Quite ironically, most banks headquartered elsewhere and having operations in Kerala, have lent in Kerala much more than the Kerala’s own banks.

The public sector banks (PSBs) (none is headquartered in Kerala) operating in Kerala as a class though have raised Rs2,76,749.13 crore ($37.15 billion) as deposits from Kerala, 70 per cent of that – Rs1,93,747.56 crore ($26.01 billion) has been given away as loans within Kerala itself as of December end, 2019.

Even as the private sector banks including the four Kerala based banks did raise deposits to the tune of Rs2,24,176 crore from Kerala, 62.26 per cent of that or Rs1,39,579 crore was distributed within the state as loans.

Even the cooperative banks that historically maintain a relatively low credit-deposit (CD) ratio has built a loan book of Rs51,517 crore as of December 31, 2019 against its deposit base of Rs72,315 crore – at a CD ratio of above 70 per cent.

While there are so many outside banks that have lent close to or more than they raised from the state, such as Punjab National Bank (PNB), City Union Bank (CUB), HDFC Bank, ICICI Bank, Axis Bank, Indus Ind Bank, banks such as United Bank of India (UBI) and Jammu & Kashmir (J&K) Bank have lent in Kerala about four times the deposits raised from Kerala.

(With the merger the names of some PSBs changed since December 2019)

There could be more idiosyncratic reasons for the Kerala-based banks’ low CD ratio.

Reduce lease registration fee, says SLBC

Though these banks have substantially increased their gold loans lately, the state level bankers’ committee (SLBC) has found that credit to agriculture is one area where the banks can play a much bigger role if the government reduces the lease registration rates.

There is huge land parcels lying fallow and the farmers are willing to do lease farming in these lands. The scale of lease farming operation currently is small.

Non-availability of credit from banks is a limiting factor as most of these farmers have only unregistered lease, which a banker can treat as oral lease only and hence can only lend small sums.

“As a result, they either cultivate less, or go to the money lender for larger sums. Reducing the registration costs, the lease farming sector can be opened up to the formal banking channels,” SLBC said.

MSME is another area which needs increased attention with regard to their soaring bad loans that drive the banks away from them. Though MSME constitutes only 16 per cent of the total advances, its share in gross NPA, now stands at 37 per cent.






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