Kerala banks have a recorded history of over 120 years, beginning with Trivandrum Permanent Bank Ltd established in 1899. According to the details available in the annual issues of Statistical Tables Relating to Banks in India, as many as120 banks were born in the state during this period. Thrissur district's contribution is notable, where 38 banks were born. Out of the 120 banks, only seven have survived, after going through different stages of development, rampant bank failures and bank mergers, voluntary or otherwise. Three of the surviving banks are in Thrissur district; one in Thiruvanathapuram and. the other one in Aluva. It may be recalled that it was the failure of one of the Kerala-based banks, Palai Central Bank Ltd in 1960, that prompted the Reserve Bank of India to establish the Deposit Insurance Corporation of India. From then, investors in bank deposits were assured of receiving back their money (now up to one lakh rupees) in case of bank failures.
State Bank of Travancore is the only public sector bank originating from the state. Federal Bank Ltd leads the group of four private sector banks of the old generation. The new additions to the list of banks are the two gramin banks, joining them as late as in 1976. One significant contribution made by all these banks since their inception is providing banking facilities to generations of customers in very small places in different districts. When banking was an urban-oriented service before the dawn of nationalised banking era, these banks were serving the not-so-rich customers in many small towns in the state.
Kerala-born banks
Small banks in good number have cropped in many small towns in Kerala during the last century. Most of them were unit banks with very little capital base. Local patriotism and pride supported some of them having short span of life. Cities like Trichur (now Thrissur), Kottayam, Palghat (now Palakkad), Calicut (now Kozhikode), Cochin (now Kochi) and Cannanore (now Kannur) had witnessed the genesis and demise of local banks. Trichur town has the distinction of having seen the birth of the largest number of banks-21 out of the 33 banks born in the district. It also has the credit of having fostered three of the durable banks existing now. Eight banks were born in Kottayam city, the centre of plantations; but none survived. Palghat produced three short-lived banks; Calicut, the busy port town, has witnessed the rise and fall of two banks, one of which lived for a century. In Cochin, the bigger port town, three banks were born and were in business for a short period only. Three banks were born in Cannanore, a district headquarter on the Malabar coast; only one of them continues to function at present.
The Travancore-Cochin region was having a large number of small banks in the 1950s. Travancore Cochin Banking Inquiry Committee (1954) has recorded the existence of 163 such banks in this region. It was reported that 136 banks out of them were set up in small hamlets. Their number dwindled considerably in the 1960s. From the Statistical Tables Relating to Banks in India1962 and supplemented by the later publications, only 120 banks could be enlisted for the present study.
They merged for survival...
When the going was getting tough, the wiser banks among them adopted the route of merger with bigger and stronger banks. Through this process, they safe-guarded to some extent the interest of their stake-holders, when the bank deposits were not insured.
As many as 81 banks have merged themselves with local banks and other banks like Canara Bank, Syndicate Bank, Indian Overseas Bank, State Bank of India and Vijaya Bank. The most recent mergers are that of Nedungadi Bank Ltd with Punjab National Bank and Lord Krishna Bank's merger with Centurion Bank of Punjab.
 One of the salient features of the seven surviving banks in Kerala is the inorganic growth path adopted by all of them. They have taken over 44 smaller banks at different stages of their development. Most of the mergers have taken place in the 1960s, when the Reserve Bank of India initiated the process of bank mergers to weed out the weaker banks. This process has enabled them to expand their presence in the state, enlarging their clientele base. However, they could not shed their image of regional banks, as the major portion of their business was confined to the home state. Their outward journey has begun much later, visibly after the liberalisation measures were introduced as a part of the financial sector reforms. They have now made their presence in some of the major business centres. However, by and large, they are represented in not more than 50 to 60 centres among the top 100 centres in India.
The surviving seven
State Bank of Travancore, the youngest Kerala-born bank, is the biggest among the seven banks. Interestingly, at the national level, the oldest bank, State Bank of India, is the biggest bank. State Bank of Travancore, which appeared on the scene in 1945, has 710 branches spread all over the state and is having presence in major cities outside. Born as Travancore Bank Ltd, it had the patronage of the princely state. With a volume of business of Rs. 63,000 crore, it is the third biggest among the associate banks of State Bank of India. Earning a net profit of Rs. 386 crore in FY2008, it has declared a dividend of 100 per cent. During its long journey of 63 years, it has taken over as many as seven banks in the state - Indo-Mercantile Bank Ltd; Bank of New India Ltd; Bank of Alwaye Ltd; Vasudeva Vilasam Bank Ltd; Cochin Nayar Bank Ltd; Champakulam Catholic Bank Ltd, Kottayam Orient Bank Ltd and Chaldean Syrian Bank Ltd. Nearly a fourth of the banking business of the state is handled by State Bank of Travancore. A Long Tradition of Trust, the Bank claims to have built up.
Federal Bank, the largest...
Federal Bank Ltd is the biggest bank in the private sector in the state, whose volume of business exceeds Rs.47,000 crore as on June 2008. Topping the list among the old generation banks in the private sector banks in India, its income level exceeds Rs.2910 crore. With a network of 603 branches, it has a strong base in the state. Progressively growing fast in the recent years, it earned a net profit of Rs.360 crore in FY2008. Originating as Travancore Federal Bank Ltd in 1931, it was operating in a small town Nedumpuram near Tiruvalla. Its head office was shifted to Aluva in 1945 and its name was changed as Federal Bank Ltd in 1947. In the 1960s, it took over five banks operating in different parts of the state - Alleppey Bank Ltd, St. George Union Bank Ltd, Chalakudy Public Bank Ltd, Cochin Union Bank Ltd and Marthandam Commercial Bank Ltd. Its latest acquisition was the less known bank from Maharashtra, Ganesh Bank of Kurundwad Ltd in 2006. Shedding its image of a regional bank, Federal Bank has been spreading its branch network extensively. It has opened a Rep. Office in Dubai recently. Its efficiency can be judged by two of the critical financial ratios; net NPA ratio is 0.23 per cent and capital adequacy ratio is 22.47 per cent. The dividend rate declared during FY2008 is 40 per cent. The Bank considers itself as your perfect banking partner.
SIB took over 15 banks...
South Indian Bank Ltd comes next with a volume of business of Rs.20,138 crore generated through its 511 branches. Located in Thrissur, it has made rapid strides in improving its bottom line in the recent years. Its net profit in FY2008 increased to Rs.152 crore. It had its own share in bank mergers. It has taken over 15 smaller banks in Kerala, most of which were very small banks with operations confined to a few districts - Catholic Oriental Bank Ltd; Chalakudy Bank Ltd; Malabar Bank Ltd; Catholic Syrian Christian Bank Ltd; Kshemavilasom Banking Co Ltd; Public Bank Ltd; Vijaya Lakshmi Bank Ltd; Ambat Bank Ltd; Bharath Union Bank Ltd; Oriental Insurance and Banking Corporation Ltd; Venadu Bank Ltd; Suburban Bank (P) Ltd; Assyarian Charities Banking Co .Ltd; Kozhuvanal Bank Ltd and Mukkattukara Catholic Bank Ltd. In its business expansion, the Bank could peg down the net NPA ratio at 0.33 per cent and has a capital adequacy ratio of 13.80 per cent. It has rewarded its shareholders with a dividend of 30 per cent during FY2008. Having initiated steps in image building and becoming an IT-savvy bank, it invites its customers to experience new generation banking.
CSB, the oldest...
Catholic Syrian Bank Ltd is the oldest among the seven banks, born in 1920 in Thrissur. Its branches are 361, largely confined to the home state. Volume of business handled is Rs.8632 crore yielding a net profit of Rs.36 crore.  Though small in size, it also has a track record of amalgamating five banks with it in the 1960s - Ollur Bank Ltd, Puthenpeedika Bank Ltd, Oriental Charities Banking Corporation Ltd, Mar Appraem Bank Ltd and Indian Insurance and Banking Corporation Ltd. Unlisted in the stock exchange, Catholic Syrian Bank Ltd has its capital and reserves at Rs. 305 crore, adhering to the minimum level stipulated. Its capital adequacy ratio remains at 10.87 per cent; net NPA level is slightly higher at 1.61 per cent. It did not lag behind in rewarding its shareholders; the dividend paid was 30 per cent. To its customers, it assures support all the way.
Modest base of Dhanalakshmi Bank
Dhanalakshmi Bank Ltd is the smalles t among the Kerala banks, having only 181 branches. Its total business is Rs. 5710 crore and earned a net profit of Rs. 28 crore. It has one of the lowest volumes of paid up capital and reserves, amounting to Rs.172 crore. Like all the other surviving banks, it has also taken over as many as 12 banks in the state in 1964, four of them were operating in Thrissur town only. Lakshmi Prasad Bank Ltd, Sree Radhakrishna Bank Ltd, Mar Thoma Syrian Bank Ltd and Nayar Union Bank Ltd were the local banks merged. Hindu Bank Ltd, Parameswara Vilasam Banking Co, Parli Bank Ltd, Moolankuzli Union Bank Ltd, Catholic Parish Bank Ltd, Vyavasaya Bank Ltd, Asoka Bank Ltd and Irinjalakuda Bank Ltd were the other banks merged.  The area of operation of Dhanalakshmi Bank, however, has remained largely in the southern states only. Expanding the credit base cautiously, it has maintained its net NPA ratio at 0.88 per cent, while its capital adequacy ratio remains at 9.21 per cent. Though its bottom line is not very large, it could pay a dividend of 10 per cent in FY2008. Its by-line in advertisements asserts, relationship is forever since 1927.
Gramin Banks - Pole stars of rural banking
In the field of rural banking, the state has two regional rural banks, which have been established under the Regional Rural Banks Act of 1976. They are: South Malabar Gramin Bank and North Malabar Gramin Bank. Unlike many other banks of this category, these two banks are poles apart; they have proved their viability and suitability as the most appropriate rural credit delivery agents. Gramin banks, it may be noted, were promoted with very specific objectives of serving their target groups - marginal farmers, landless agricultural labour and people below the poverty line - in rural areas in selected districts only. State governments were invited by the Government of India to coordinate with the selected public sector banks for promoting these banks. Reluctance on the part of some state governments, particularly where the cooperative sector was quite vocal, resulted in extending cold reception to the new credit agency. This was evident in states like Kerala, Tamil Nadu, Maharashtra and Gujarat. In Kerala, the state government agreed to promote only two gramin banks covering only a few districts. (Karnataka and Andhra Pradesh, on the other hand, took the initiative of covering the entire states by promoting 13 and 16 gramin banks respectively). The area of operations being confined to two districts each to begin with, the two gramin banks in Kerala were finding it difficult to expand. It took more than two decades for the regulator to enlarge their operational areas to cover more districts.
 South Malabar Gramin Bank is owned by the Government of India, Kerala state government and Canara Bank in the ratio of 50:15:35. Established in 1976 in Malappuram, it has 225 branches. Its area of operation was extended to cover eight districts - Malappuram, Idukki, Palakkad, Kozhikode, Thrissur, Pathanamthitta, Thiruvanathapuram and Waynad. The total business handled by the Bank exceeded Rs.3933 crore in FY2008. Proving that rural banking is not necessarily a losing proposition, it has earned a net profit of Rs.29 crore. Reaching out to the rural population being the mandate given to gramin banks, it has developed a customer base of 20 lakh deposit accounts and 10 lakh borrowing accounts.
A novel scheme called Sneharaamam was introduced by the Bank during FY2008. Its Annual Report explains: "the scheme combines the twin objectives of financial inclusion and freeing the villagers from the clutches of local money lenders, who charge exorbitant rates of interest." Under this scheme, the Bank has assisted 2168 beneficiaries with a credit disbursement of Rs.183 lakh in nine villages.
Money-lender-free villages...
North Malabar Gramin was promoted by Syndicate Bank in association with the government of India and the Kerala state government in 1976. It is located in Kannur and now covers seven districts - Kannur, Kasaragod, Kollam, Kottayam, Ernakulam, Alappuzha and Wayanad districts. Its service network has 165 branches and 124 out of them are concentrated in the first two districts, which was its original area of operations. The volume of deposits mobilised is Rs.1386 crore and the amount of credit outstanding is Rs.1418 crore as on March 2008.  The Bank has a wide customer base consisting of 11.63 lakh deposit accounts. Contrary to the general perception of poor recoveries associated with rural operations, it has one of the lowest NPA ratios- 0.77 per cent.
From 2006, this Bank has been implementing a programme aiming at the creation of moneylender-free villages. Kakkengadi is the first village to be brought under this programme with the help of the local Farmers' Club, which has won the best Farmers' Club Award. This programme has been now extended to 150 panchayath wards.
Liberalisation of the operational parameters governing the gramin banks in the recent years has enabled them to compete with the commercial banks in certain fields. Despite the absence of the level playing field, South Malabar Gramin Bank could earn a net profit of Rs.29 crore, which is equal to the net profit earned by Dhanalakshmi Bank Ltd, the 81 year old commercial bank. The latter has a better business mix and has a different pattern of branch network consisting of many urban branches. Notwithstanding these functional and structural differences, the gramin bank has attained parity with the older bank in terms of profitability. This indicates that a rural bank also can earn as much as a small urban bank, given an opportunity.
Influx of banks:
Since the 1970s there has been an influx of banks in Kerala and expansion of branches. Nationalised banks and the State Bank group have opened branches in large numbers. After the 1990s the new generation banks also have enlarged their service points in the state. The number of branches of all banks has increased from 947 in December 1972 to 3836 in March 2008. Nationalised banks have the largest number, 1341, besides the State Bank group's 848 branches. Private sector banks, including the new generation banks, have 1268 branches. The four local banks together have 1045 branches in the state.
The share of the private sector banks in the total deposits mobilised by banks in the state is Rs.36,707 crore, which is slightly higher than those of the State Bank group, in the state of Rs.35,697 crore. Details of the share of the local banks in these deposits are not readily available. Kerala has been a deposit-rich state largely due to the NRI deposits accumulated through the remittances from the Gulf. As a result, growth in deposits is faster than the rate of increase in credit deployment. The aggregate credit-deposit ratio for the state has remained low. Total deposits are Rs.109,103 crore while the volume of credit outstanding is Rs.71,226 crore as on March 2008.
Foreign banks insignificant
Though historically, Kerala was the preferred destination of European traders like the Portuguese, Dutch and later the English, today, foreign banks have very limited presence in Kerala. The legendary voyage of Vasco-da-gama to Calicut had resulted in increasing the state's exposure to world trade. But hardly any foreign bank had its branch in any of the port towns of the state. During the pre-Independence days the only foreign bank, which had a branch in Calicut, the prominent port town on the Malabar coast, was Chartered Bank of India, Australia and China.
As on date, foreign banks have only six branches in Kerala, confined to Kochi, the port city and Thiruvanathapuram, the state capital. Hong Kong and Shanghai Banking Corporation has branches in both the cities. Standard Chartered Bank and CitiBank are the other banks operating in Kochi. The share of foreign banks in the state's total banking business is negligible. Deposits mobilised by them were at Rs. 628 crore as on March 2008. Their exposure to personal loans and housing finance is unduly high; out of the total credit lent (Rs.295 crore) by them in the state, Rs.109 crore are housing loans. These banks appear to be making their own contribution to the boom in the real estate business in the state.
With the liberalisation of the entry norms for foreign banks from March 2009, more of them are likely to make their appearances in many of the Indian cities. Doha Bank is reported to have shown its interest in entering Kerala.
Heavy concentration in three districts…
There is heavy concentration of bank credit in three out of 14 districts in Kerala, resulting in huge inter-
district variations. Ernakulam, Thiruvanathapuram and Thrissur districts account for nearly 42 per cent of the total credit lent in the state. Though Ernakulam district has the largest volume of bank credit (Rs.16,089 crore),  Thiruvanathapuram district has the larger number of borrowing accounts; 8.83 lakh as against 5.69 lakh accounts in Ernakulam. Incidentally, according to theCensus 2001, in Thiruvanathapuram district, 48 per cent of the urban households have availed banking facilities. For the state as a whole, the banking penetration ratio - measured in terms of the percentage of households availing banking facilities - works out to 54 per cent for urban households and 51 per cent for rural households. For a state like Kerala, which has the highest literacy ratio and which had the presence of large number of small local banks since long, the penetration of banking facilities is still small. In their pursuit of attaining 100 per cent financial inclusion, banks have declared to have achieved 100 per cent financial inclusion in Palakkad district.
 Wayanad district, with its hilly terrain and plantations, remains at the other extreme, receiving the lowest volume of bank credit. Out of the total credit outstanding- Rs.977 crore, the share of direct agricultural advances is Rs.432 crore. This is the only district in the country, where two gramin banks are operating. It has the lowest number of borrowing accounts; 1.79 lakh; out of which 1.27 lakh accounts are farmers.
Housing finance the major portfolio of personal loans...
While industrial advances are concentrated in Ernakulam district (Rs. 4477 crore out of the total industrial advances of Rs.10,029 crore), personal loans are concentrated in the three major districts. The component of housing loans in personal loans is very large. Housing finance in Kerala constitutes a major portfolio of banks. Its share is fairly high at 22.6 per cent, much higher than the national average of 11.7 per cent. House building activities are a common sight one cannot fail to note while travelling on the national highway. Shops selling construction materials, more visibly various shades of marbles, can be seen in all cities through which the highway passes. Huge gates and long compound walls must be eating away a good portion of such loans. Remittances from the Gulf supplement the resources for constructing big houses and huge shopping complexes in the big cities.
The three districts mentioned earlier get the lion's share in housing finance also. Ernakulam gets the highest amount of housing loans (Rs.3242 crore) followed by Thiruvanathapuram (Rs.2261 crore) and Thrissur (Rs.1372 crore). Housing loans also are quite prominent in the plantation-rich Kottayam district, which has substantial agricultural advances as well as personal loans. Out of the total advances of Rs.4356 crore, the share of housing loans is Rs.911 crore. Surprisingly, in Palakkad district, nearly 29 per cent of the total advances are housing loans. No indications of the quantum of these advances becoming sticky are available in any published source. Such a high percentage of long term advances is not a desirable feature, as it may lead to a mis-match of long term assets and short term liabilities.
Kerala has seven of the top 100 banking centres...
Kerala has seven prominent banking centres, which are included in the top 100 banking centres in the country. Kochi, the industrial centre, ranks 16th in terms of the credit outstanding, as on March 2008. Total credit lent by 274 branches of all banks operating in the city is Rs.12,827 crore. Its annual growth rate is 16 per cent. In terms of deposit mobilisation, its rank is 19 and the volume of deposits is Rs.15,648 crore.
Thiruvanathapuram, the state capital, comes next with a rank of 21 on the basis of credit deployed and 23 in terms of deposit mobilised. With 217 branches of banks, the volume of credit outstanding is Rs.8227 crore. Kozhikode is third in the list, but ranked much lower both in terms of deposits and credit. It has only 120 branches, including that of a foreign bank. Ranked 52nd according to credit disbursal, it has the largest volume of advances made to transport operators.
Thrissur, the hometown of three local banks, ranks 66th in terms of credit deployment, the amount of credit outstanding being Rs.2346 crore. In deposit mobilisation, its rank goes down to 74th. Aluva, another town, where the headquarters of Federal Bank is located, has a deposit base of Rs.4011 crore, mobilised by 24 branches of different banks. Its rank is 66th. The growth rate in deposits is 27 per cent. The disbursement in the town is of a smaller magnitude, earning for it the 130th rank. Kollam with a deposit base of Rs.1980 crore is ranked 77th. Kottayam, though has more bank branches (59), remains at 93rd rank in terms of credit and 99th in terms of deposits.
Prospects…
Banking sector in India is witnessing many far reaching changes as a result of the process of financial sector reforms initiated during the last decade. Competition among banks is becoming tough, affecting the topline of many of them. The latest Report of Currency and Finance 2006-08 released by the Reserve Bank of India provides some interesting data on the operational efficiency of different groups of banks in India, based on a number of parameters. Though the data pertaining to individual banks are not available in this Report, it provides comparative data for groups of banks like old private sector banks, new private sector banks and public sector banks. To fill up this gap, some of the relevant quantitative and qualitative data pertaining to the seven Kerala banks are given in the table, culled from the annual reports of respective banks.
In quite a few cases of the efficiency ratios available in the Reserve Bank report, the old private sector banks are found to remain much behind the new private sector banks as well as the public sector banks. To cite an example, the ratio of return on equity is 10.32 per cent in 2006-07 for old private sector banks; the comparable data for new private sector banks is 13.57 per cent and for the public sector banks, it is 14.85 per cent.
Another ratio, which points out glaring differences among groups of banks, is the volume of business handled per branch. Old private sector banks generate a business volume of Rs.52 crore per branch, while their counterparts in the public sector group manage Rs.67 crore. The new generation banks handle much larger volume of Rs.294 crore, while the foreign banks in India grab a business volume of Rs.1004 crore per branch. Perhaps, small cannot remain beautiful in the face of growing competition and enlargement of the financial products sold by banks. Strategic business alliances among themselves could be a bulwark against the threat of mergers and acquisitions. |
