The Hindu Business Line : Banking on new avenues

Most credit accounts opened in Kerala go to service the agriculture and personal loan segments, with total amounts rarely crossing the Rs 100,000 mark.

AS the year draws to a close, most companies and institutions must be in some sort of appraisal mode looking into the past to draw some lessons for the future.

Not all will be equally successful in such self-analysis, and many may not even bother to try such soul-searching at all. One sector in Kerala that certainly needs to do so is the banking sector.

Not long ago, the Kerala Government asked commercial banks to provide credit support at concessional rates to farmers in agricultural export zones. This kind of hankering after largesse is not uncommon to Kerala's bankers, for banking is both a holy cow and a whipping-boy in a State not known for industrial entrepreneurship. Overcautious bankers are often blamed for lack of entrepreneurship and the failure of businesses is also traced to them.

There are 51 commercial banks operating in the State through a network of 3,345 branches. Of these, six are Kerala-based, with the public sector State Bank of Travancore leading the pack, followed by five "old" private sector banks like Federal Bank and South Indian Bank. Kerala accounts for 5 per cent of the total number of bank offices in India, 4.6 per cent of all deposits and 3.6 per cent of credit disbursed by commercial banks in the country. Despite a high population density, the average population per bank branch is significantly lower in Kerala than the rest of India. Kerala's commercial banks may be successful in mobilising deposits, especially from non-resident Indians (which make up half the total deposits), but they fare poorly in the matter of disbursement of credit.

In a recent study, statistician D. Narayana of the Centre for Development Studies found that the State has almost 50 per cent more bank deposit accounts than the national average. While Kerala has 646 deposit accounts opened for 1,000 of its population, the national average is 417 accounts. States such as Chattisgarh and Bihar have just half the national average.

As for the number of credit accounts opened, Kerala is far above the national average. Against 51 credit accounts opened for every 1,000 population of the country, Kerala reported 116 accounts. Only Chandigarh and Delhi topped Kerala in the number of credit accounts.

With just 50 per cent of the national average in credit disbursal per account, Kerala has long been the target of critics. But, according to Narayana, the low CD (credit-deposit) ratio of the State is not due to the small number of credit accounts opened, but because the average amounts in such accounts are relatively small.

Given the State's industrial profile, it is easy to see why this is so. Most credit accounts opened in Kerala go to service the agriculture and personal loan segments, with total amounts rarely crossing the Rs 100,000 mark.

Even in loans to the mid-cap corporate segment — consisting of the transport, services, professional and trade sectors — Kerala fares poorly, both in the number of loan accounts and in the amounts disbursed. Average loan amounts in this segment range between Rs 100,000 and Rs 200,000.

Sadly, large loans of over Rs 500,000 — the lifeline of the financial and industrial sectors elsewhere in the country — are conspicuous by their near absence. Only Orissa has fared worse than Kerala in disbursing large loans to industry.

But all that could soon change. The Indian banking industry is itself on the verge of a major transformation: with its focus increasingly shifting from large corporate to retail credit. This has been successfully undertaken at the national level with minimal reportage of impaired assets. This shift in focus should augur well for Kerala's banking industry.

Bankers point out that it was not the low amount of credit alone, which had reduced the credit deposit ratio of the State. Previously, the access to retail credit was highly regimented.

It was an exclusive seller's market with the customers paying huge rates of interest and were bereft of any choice. But with the transformation from a sellers to a buyers market, a wide range of competing choices and low interest rates are opening up and the banking industry in the State is on the verge of a make over.

But sadly several of the old generation private sector banks are still seeking their place in the sun. Recently, the largest old private sector bank in the State, Federal Bank, was in the throes of a controversy. The South Indian Bank is still in the race to attain a national stature. But it still has a long way to go. Size continues to be a limiting factor of smaller banks like the Catholic Syrian, Dhanalakshmi and Lord Krishna Bank. Banking in Kerala might be shifting into new avenues, but it is to be seen how the old generation private sector banks are able to harness their potential for growth and prosperity.

The author can be contacted at kgkumar@gmail.com

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