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Monday, Oct 28, 2002

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Bankers bristle at charge over low credit-deposit ratio

Vinson Kurian


THE banking community in Kerala, which has come under a fresh bout of attack by the political establishment holding it responsible for the persisting low credit-deposit ratio in the State, has denied that deposit monies are being diverted for lending outside.

"This is not true, and falls flat on its face if only because the prevailing dull investment climate is generic to all States' and hardly compels diversion of deposit funds for onlending,'' according to Mr G. Umesh Shenoy, General Manager, Kerala circle of Canara Bank. The bank is also convenor of the State Level Banker's Committee (SLBC), the common platform for all nationalised banks operating in the State.

According to Mr Shenoy, all banks are faced with a problem of plenty, vis-a-vis deposits. Only, the CD ratio may be slightly better in some States — barring Bihar, Uttar Pradesh and a couple of others which are very backward. "Even in those States which have traditionally enjoyed better CD ratios, we find there are hardly any avenues available for fresh lending,'' he said.

According to Mr Shenoy, this tussle between the political establishment and bankers has been going for a long time. The political class maintains that public sector banks have not been doing anything more than raising deposits and siphoning off the monies for lending elsewhere. According to Mr Shenoy, they may have a valid case in that banks that have been mobilising large deposits from funds available with the NRI population; generally, 60 per cent of the deposits have come to be sourced from NRIs. Another 10 to 20 per cent could well be traced to ex-NRIs. This practice of lending outside may have been true till a few years back when banks here found it extremely profitable to lend wherever the investment climate was exceptionally good. But not any more, with credit off-take being badly affected in the wake of globalisation and the consequential problems attributable to economic liberalisation.

The CD ratio cannot be improved by merely providing money to Government-sponsored schemes like PMRY, SGSRY etc. "There are hardly any new industries coming up in the State. Probably, the Government can help us by pointing out to us which are the industries that have come up here and which we have refused to lend to,'' Mr Shenoy said.

On a different plane, banks are actually incurring a loss carrying these deposits. Some of them, Canara Bank included, have found it expedient to cut deposit rates. But they still have to contend with deposits acquired at higher rates of 12 per cent and more. Because of lack of avenues for lending, banks are being forced to put their money in Government papers and call money where the rates are below six per cent.

"Even while we are incurring losses, we can't just stop accepting deposits. We can only hope to regulate it to some extent by tinkering with interest rates. But, we would like to view the current slump as a temporary phenomenon and therefore we would continue to accept deposits even while risking loss. If we stop taking deposits altogether now, we would well be made to run after depositors in a prospective scenario where credit off-take begins to look up,'' Mr Shenoy added.

Wanted: Level-playing field

THE main grouse of the nationalised banks in Kerala is that they have bore the brunt of the long-drawn CD ratio controversy while private banks, some of them headquartered in the State, have been spared much of the barbs despite posting comparatively poorer individual CD ratios themselves.

According to the State-Level Bankers' Committee (SLBC), nationalised banks, with average CD ratio of 43 per cent, have for some reason become the favourite whipping boy for all, while private banks are quietly enjoying the scene from the sidelines.

This when these banks have fared none the better in the CD ratio sweepstakes.

Quoting statistics, SLBC sources said as on June 2002, Federal Bank, the largest private bank and with the home base advantage, posted a CD ratio of 46.44. Dhanalakshmi Bank based in Ernakulam returned 41.41.

But, the Thrissur-based Catholic Syrian at 26.71 and Ernakulam-based Lord Krishna at 23.56 fared way below expectations. Kozhikode-based Nedungadi Bank posted a somewhat respectable 44.02, while Thrissur-based South Indian Bank registered a modest 36.55.

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