Unlike its neighbouring southern and western states, Andhra Pradesh is not blessed with many home- grown banks. According to the available data, which may be partial, only 20 banks (excluding the recent crop of gramin banks and local area banks) were born in the state; and of them only two have survived. Andhra Bank is the oldest bank followed by State Bank of Hyderabad. Both are in the public sector. One bank in the private sector, which came up in the state, a decade ago, raising the expectations of bankers and the public very high, was the Global Trust Bank Ltd. Within a short period, however, it ran into bad weather, resulting in its merger with Oriental Bank of Commerce, a Delhi-based public sector bank. Global became Oriental in the process.

In the 1970s, when the incarnation of gramin banks took place, 16 of them appeared in different districts of the state, thanks to the initiative taken by the government of India, the state government and five public sector banks. They went through a process of amalgamations between 2005 and 2007, reducing thereby their number to five. Another specie of banks, which came up in the late 1990s is the local area bank. Two banks of this type have found shelter in the state, supported by local initiative.

Inadequate: breeding ground

The state's failure to promote local banks in good numbers could be attributed to the peculiarities of the geo-political factors pervading the state's economy before its reorganisation on linguistic basis. A greater part of the state was under the Nizam's state and the remaining part was in the widely extended Madras Presidency. Nizam, one of the richest rulers of the native princely states in India, was presiding over the poorer region of the state. The districts populated by the Telugu-speaking people in the Madras Presidency were better developed than the districts in Nizam's state. During the early 1940s, these district headquarters were having the branches of Imperial Bank of India, while the districts in Nizam's state were devoid of banking facilities. Their economic backwardness could neither attract banks from outside nor could facilitate the formation of local banks. Some of the Kannada-speaking districts from Nizam's state, however, were having banking facilities provided by Imperial Bank of India and Central Bank of India.

Twenty banks were born in the state since 1923, as could be enumerated from the Statistical Tables Relating to Banks in India. Their genesis may be traced to the relatively more prosperous districts, which were a part of the old Madras Presidency. Hyderabad, the seat of administration of Nizam's state has seen the birth of four banks, only one of which has survived. Emulating the efforts made by the traders and lawyers of some of the towns in Madras Presidency in promoting paropakara nidhis or mutual benefit funds, many such nidhis were promoted in districts like Nellore, Anantapur and Chittoor. Their names, however, were not found in the Statistical Tables published by the Reserve Bank of India.

Banks in the state were established in the business centres and district head- quarters of the coastal districts. Masulipatnam,Rajahmundry, Kakinada, Visakhaptnam, Guntur, Vijayawada and Kurnool were the centres, where local banks originated. Very little evidence is available to indicate the efforts made by the banks to expand their business by opening branches in other centres. Low capital base and lack of ambitious plans for expansion could have been the factors dampening their development.

Unlike the Kerala banks, the short-lived banks in Andhra Pradesh did not adopt the merger route for preventing their premature departure from the banking scene. Barring a couple of them, they have gone into liquidation. Many of the mutual benefit funds could not morph themselves into banking companies. They preferred to remain as non-banking companies.
There was a small bank born in Bellary migrating to Andhra Pradesh. Rayalaseema Bank Ltd was born in Bellary in 1939, which was a part of Madras Presidency. When the new state of Andhra Pradesh was formed in 1956, this bank shifted its head office to Anantapur, the neighbouring district in the new state. Within a few years it merged with Andhra Bank in 1961.

In Madras Presidency there were four districts considered as Back ward districts: Bellary, Anantapur, Cuddapah and Kurnool. Credit for extending banking facilities to these districts in the 1930s goes to Syndicate Bank, which was then known as Canara Industrial and Banking Syndicate Ltd. It opened branches in small towns like Adoni, Tadapatri, Proddatur, Jammalamadagu and Nandyal. When the Lead Bank Scheme was introduced in 1970, very appropriately, Syndicate Bank was designated as the Lead Bank for all the four districts.

The durable two...

Andhra Bank, one of the two surviving banks of the state, owes its origin to the visionary efforts of Dr. Pattabhi Sitaramayya, the well-known nationalist leader of the state. It was set up in a coastal town, Masulipatnam, in1923. Dr. Sitaramayya was the founder of this bank besides being the promoter of Bharath Lakshmi Bank Ltd established in 1929 in the same town. Masulipatnam, on the Coramandal coast was one of the earliest British settlements, with the East India Company engaged in the export trade. Bank of Madras, one of the three Presidency banks, was having a branch here since 1905. Andhra Bank Ltd came into being in this town and after four decades, its head office was shifted to Hyderabad in 1963. Next year, Bharath Lakshmi Bank Ltd was merged with it. In 1980, it was nationalised along with five other banks, Government of India becoming the sole owner. After the partial privatisation process introduced under the financial sector reforms, the government ownership in Andhra Bank has come down to 51.6 per cent. The capital adequacy ratio remaining at 11.62 per cent and the government ownership already touching 51 per cent, the Bank appears to have little elbow room for enhancing its capital through public subscripti0on.

During the last three decades, Andhra Bank has grown very fast. Its total business has crossed the level of Rs.83,256 crore by June 2008. It has emerged as the biggest bank in Andhra Pradesh in terms of its branch network. Its clientele base comprises of 174 lakh customers served through its 2139 business delivery channels consisting of 1371 branches, 66 extension counters, 38 satellite offices and 664 ATMs spread over 21 states and two Union territories.

Hyderabad State Bank Ltd was promoted by the Nizam in 1941 in Hyderabad to function as the central bank, which had its own currency. In 1953, it took over Hyderabad Mercantile Bank Ltd, a small Hyderabad-based bank. It became an associate bank of the State Bank of India in 1956 changing its name as State Bank of Hyderabad. It is wholly owned by the State Bank of India. During FY2008, it has declared the highest rate of dividend, 480 per cent, enriching the owner-bank. There was a proposal of its merger with State Bank of India, when State Bank of Saurashtra was merged with it. The current mood appears to be not in favour of any such move. Widely spread out in the home state, it has the second largest branch network. In terms of the volume of business handled, it is in close competition with the other home-grown bank.

Emulating the South Kanara banks, both these banks have ventured into establishing rural self-employment training institutes on the RUDSETI model in their home state. (See, Self-Employment:RUDSETI-A Cost-effective Model in Industrial Economist, 30 June 2006). Training is imparted free of cost in these institutes to unemployed youth to enable them to take up self-employment ventures. Financial support is offered to the trained persons interested in starting any self-employment activity. Andhra Bank has established nine Andhra Bank Institutes of Rural Development; seven of which are in Andhra Pradesh and one each in Orissa and Kerala. State Bank of Hyderabad has opened seven Rural Institutes for Self-Employment Training in the home-state, adding one of them during the current year. These institutes have conducted 120 programmes during FY2008 and trained 7049 rural youth with a settlement ratio of 73 per cent.

As far as the achievements under financial inclusion are concerned, both the banks claim to have made good progress. Andhra Bank reports that it has adopted two districts, namely, Srikakulam in Andhra Pradesh and Ganjam in Orissa and has achieved 100 per cent coverage. It is also reported that it has opened 2.11 lakh no-frill accounts till June 2008. State Bank of Hyderabad does not lag behind. It announces that it has achieved 100 per cent financial inclusion in Nizamabad and Rangareddy districts.

Gramin banks: revitalised, numbers reduced

Andhra Pradesh is one of the few states where all the districts are covered by gramin banks. Three of them, Nagarjuna Grameena Bank, Sri Visakha Grameena Bank and Rayalaseema Grameena Bank, were the first to appear in the banking scene in 1976. The first two were sponsored by State Bank of India and the third by Syndicate Bank. By 1987 their number increased to 16, with three more sponsoring banks joining the fray. These banks have gone through different stages of growth and stagnation during last three decades of their existence. While some of them proved their financial viability and operational capability, many were just operating in rural areas, without much publicity. With a view to improving their viability, the Government of India, the major stakeholder, initiated a process of merger at the state level in 2005. All gramin banks in the state are reorganised and their number has come down from 16 to 5 at present.

Two gramin banks promoted by Andhra Bank - Chaitanya Grameena Bank and Godavari Grameena Bank - are merged to form Chaitanya-Godavari Grameena Bank at Guntur. It has 122 branches, spread out in Guntur, West Godavari and East Godavari districts. Handling a total business of Rs.927 crore, it has earned a net profit of Rs. 12.72 crore during FY2008
Four gramin banks of State Bank of Hyderabad,namelyGolkonda Grameena Bank, Sri. Sathavahana Grameena Bank, Sri. Saraswathi Grameena Bank and Srirama Grameena Bank are amalgamated to form Deccan Grameena Bank. Operating from Hyderabad, with a network of 173 branches, its deposit base is Rs.1444 crore and advances are Rs.1002 crore as on March 2008. Its net profit during the year is Rs.1 crore.

State Bank of India sponsored five gramin banks - Kakathiya Grameena Bank, Manjira Grameena Bank, Nagarjuna Grameena Bank, Sangameshara Grameena Bank and Sri Visakha Grameena Bank- merged; the merged bank located at Warangal is named Andhra Pradesh Grameena Vikasa Bank, at Warangal. It has emerged as the biggest gramin bank in the state in terms of branch network. It has 489 branches; deposits of Rs.2718 crore and advances of Rs.2095 crore. Its net profit during FY 2007 was Rs.15.49 crore.

Three Grameena banks of Syndicate Bank - Sri Anantha Grameena Bank, Rayalaseema Grameena Bank and Pinakini Grameena Bank were merged into Andhra Pragathi Grameena Bank with headquarters at Cuddapah. It has 340 branches operating in Anantapur, Cuddapah, Kurnool, Nellore and Prakasam districts. The total business managed exceeds Rs.5784 crore as on March 2008. Its operational efficiency can be judged by the net profit earned, Rs.90 crore, which is higher than that earned by a couple of old private sector banks in Tamil Nadu and Kerala. Expanding its efforts to enhance financial inclusion, it has opened 5.19 lakh no-frills accounts during FY2008.

Indian Bank has merged two of its gramin banks, Shri Venkateshwara Grameena Bank and Kanakadurga Grameena Bank, into Saptagiri Grameena Bank, functioning from Chittoor. It is the smallest among the gramin banks functioning in the state with only 100 branches.

With the expansion of their area of operation covering more districts, these banks would be in a better position to improve their bottom lines. Collectively they have 1163 branches in the state. The total deposits mobilised by them were Rs.8294 crore as on March 2008 and the volume of credit deployed is Rs.7925 crore. They account for about five per cent of the total banking business in the state.

Local banks: not yet vocal

Local area banks have made more noise before they appeared on the banking scene than after their establishment. After much delay in getting approval from the Reserve Bank of India, they started in 1999. While six of them finally made their appearance, two have bowed out within a couple of years. Out of the four local area banks now functioning, two are in Andhra Pradesh. Less known and hardly seen, these banks operate in limited geographic areas. Their objective is to extend credit facilities to weaker sections of the society in rural and semi-urban areas in the selected districts. Small capital base and the restricted area of operation are the two limiting factors hampering their growth. However, from the beginning they have adopted IT-enabled banking operations. They are considered as non-scheduled banks and the details of their performance are not readily accessible.

Coastal Local Area Bank Ltd, the first bank to be established in 1999, operates in three districts; Krishna, Guntur and West Godavari, with its head quarters at Vijayawada. The area of operations of this bank comprises the relatively more prosperous districts in the state. It has 16 branches.

Krishna Bhima Samruddhi Local Area Bank Ltd operates from Mehaboobnagar since 2001. Its 14 branches are spread out in two districts of Karnataka, namely Gulbarga and Raichur besides Mehaboobnagar district in Andhra Pradesh. This bank is entirely owned by Bhartiya Samruddhi Investments and Consulting Services Ltd. (BASICS Ltd) which has invested Rs. 5.00 crore. The total deposits mobilised are Rs.43.42 crore, while the advances are Rs.52.10 crore during FY2008. Its net profit is Rs.46 lakh and the net NPA ratio is 2.3 per cent.

Emerging banking centres...

Hyderabad, the fast growing cyber city does not have a long history of banks serving its people. Though Bank of Bombay had an agency here in 1863, it was closed in 1868. Bank of Bengal opened a branch in the city in the same year. It was mostly serving the British Residency than the locals. As the Indian rupee was not a legal tender in Nizam's state, it was dealing mostly with the sahukars (moneylenders). This branch was working more as a mobiliser of funds for lending in the port cities of Bombay and Calcutta. Bank of Madras did not find enough scope for opening a branch here.

Before the State Bank of Hyderabad was set up in 1941, Hyderabad had only three branches of banks: Andhra Bank Ltd, Central Bank of India Ltd and the Imperial Bank of India. Bangalore, its competitor, was then having 17 branches of 13 banks including the head office of State Bank of Mysore, since 1913. Vijayawada, then known as Bezwada, was a better banked centre having six branches of five banks. Vizagapatanam (now Visakhapatnam) was not very prominent as a port town; there were only two branches then.

Ten years ago, only three banking centres from Andhra Pradesh could find a place among the top 100 banked centres, according to Banking Statistics: Quarterly Handout March 1998. Besides Hyderabad, Viasakhapatanam and Guntur were in the list, based on the resources mobilised by the branches. Today, there are 10 centres in this list of elite banking centres. Vijayawada, Nellore, Kakinada, Rajahmundry, Warangal, Kukatpally and Tirupati are the emergent banking centres.

Hyderabad has emerged as the 6th major banking centre in the Indian banking sector as on March 2008. Growing in step with the growth of the banking sector during the last ten years, it has retained its rank over the decade. The branch network has expanded from 486 branches in 1998 to 688 branches at present. The amount of deposits mobilised by all banks in the capital city has increased from Rs.11,848 crore to Rs.72,177 crore. These banks have lent slightly more than what they have mobilised in the city. The level of credit outstanding is Rs.75,752 crore (Rs.9401 crore in 1998). Only Chennai city had the distinction of having historically a credit-deposit ratio higher than 100. Hyderabad has attained a similar status. Its annual rate of deposit accretion was 31 per cent and the rate of credit deployment was 39 per cent during FY2008.

Visakhapatnam, the major port town, ranked 24th comes next, with a deposit base of Rs.12,938 crore and advances of Rs.6938 crore. Credit growth rate is 24 per cent. There are 180 branches of various banks operating here. The third major banked city is Guntur, the tobacco centre, ranking 33rd in terms of credit, with a credit outstanding level of Rs.4829 crore. Vijayawada, the neighbouring city remains much below in rank, at 55. The volume of deposit mobilised is Rs.4882 crore and the amount of credit lent is higher at Rs. 5018 crore.

The other six centres are Nellore (ranked 83, based on credit outstanding); Warangal (87), Kakinada (88), Rajahmundry (90), Kukatpally (92) and Tirupati (94). It is interesting to note that Tirupati, where the richest temple is located, collecting a huge sum of money as offerings made by pilgrims, finds a place among the top 100 banking centres in terms of deposits, ranked 82nd. It is also climbing up as a credit centre, reaching the rank of 94. With a credit level of Rs.1599 crore, it is growing at the rate of 27 per cent per annum during FY2008.

A few more banking centres emerging in different parts of the state are finding a place in the next 100 centres selected by the Reserve Bank of India in its publication: Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, March 2008. In the next 100 centres, there are 14 from Andhra Pradesh, some among them are the district headquarters like Anantapur, Ongole, Kurnool, Cuddapah, Karimnagar,Nizamabadand Khammam. Banking development in the state is reflected in the increasing number of cites gaining prominence in the national banking map, better than in many other states.

Regional inequalities

The pace of economic development after the state's reorganisation in 1956 has induced banks to spread out to different districts, where development was taking place. After the completion of the Nagarjuna irrigation project, based on the joint survey of its command area conducted by the Reserve Bank of India and Syndicate Bank in 1969, many rural branches were opened in Nalgonda, Khammam and Guntur districts. Regional inequalities in the availability of banking facilities were reduced to a large extent since the introduction of the Lead Bank Scheme in 1970 soon after the first round of bank nationalisation in 1969. A large number of unbanked villages appeared on the banking map of the state. The introduction of the gramin banks since 1976 further accelerated the rural branch expansion programme all over the state.

According to the latest available data, as on March 2007 Hyderabad, Visakhapatnam, East Godavari and Krishna districts account for 49 per cent of the total bank credit in the state, . Hyderabad district alone, with a volume of credit amounting to Rs.60,727 crore gets the lion's share, of 37 per cent, of total credit. While there is heavy concentration of industrial advances in Hyderabad district, Guntur and East Godavari districts have more bank credit flowing to the other small scale industries. As far as agricultural advances are concerned, they are largely found in the highly irrigated districts like Guntur, East Godavari, Prakasham and Krishna in that order. In Guntur district nearly 22 per cent of the total advances go to the agricultural sector. Personal loans, including housing loans, are growing faster in Hyderabad and Visakhapatnam districts in tune with rapid urbanisation.

Adilabad, Nalgonda, Khammam, Nizamabad and Vizianagaram districts are on the other end of banking development. The number of borrowing accounts in these districts is less than five lakh each. Personal loans also are not catching up with other districts. Even the advances to village artisans in these districts are relatively very slow to grow.

The banking sector today

It is often not recognised that Andhra Pradesh is one of the few states where the banking sector has made rapid progress during the last decade. It has the third largest branch network among all the states in India. The size of the branch network is 5990. As a result, the population per branch is more favourable in the state; it is 12,600 against national average of 16,000.

The state has acquired the fifth position among the top ten states in terms of the volume of credit outstanding as on March 2008. Keenly competing with Karnataka, its credit level outstanding is Rs.162,595 crore as against its neighbour's Rs.164,110 crore. In deposit mobilisation, it ranks 7th with a total deposit of Rs.177.567 crore.

Census data on penetration of banking services in the state, however, presents a dismal picture. According to the Analytical Report on Households in the Census 2001, only 31 per cent of the total households in the state have availed banking facilities as against the national average of 35.5 per cent. In rural Andhra Pradesh, the penetration ratio slightly goes down to 30.4 per cent, while for the urban households it is 33.1 per cent. At the national level 49.5 per cent of the urban households are reported to have availed banking facilities.

From 2001 many changes have taken place in the banking sector in the state as well as at the national level. Concerted efforts are being made by all banks to expand their service platforms and credit delivery channels. They have opened 764 new branches in the state since March 2000. Deposit accounts have grown impressively from 2.96 crore to 4.30 crore during the same period. Borrowal accounts have increased from 0.66 crore to 1.11 crore according to the latest available data published in Basic Statistical Returns of Scheduled Commercial Banks in India: 2007.

Regarding the progress made in the sphere of financial inclusion, the announcement made by the convener of the State Level Bankers' Committee reveals that eight districts in Andhra Pradesh have achieved 100 per cent Financial Inclusion by March 2008. They are: Srikakulam, Nizamabad, Rangareddy, Nellore, Kadapa, Kurnool, Prakasam and Anantapur districts. In another six districts- Guntur, Warangal, West Godavari, Adilabad, Nalgonda and Chittoor, it has covered 75 per cent of the eligible households. Districts which have achieved 50 per cent to 75 per cent financial inclusion are: Vizianagaram, Mahaboobnagar, Visakhapatnam, Khammam, Karimnagar and East Godavari district. Good progress, considering the coverage of the districts in the state.

Reaching out to the hitherto un-reached should not culminate in a mere numerical exercise. Banks have to go much beyond the targets to make the whole process of reaching out a sustainable programme. When the initial enthusiasm in enrolling new customers with zero balances or paltry sum of deposits dies down after the targets are reached, banks may have in their books only a large number of dormant accounts. This possibility has already started causing concern to many banks, which have gone very fast.

After making a review of the accelerated progress made by banks in financial inclusion all over the country, it is reported that the Reserve Bank of India has initiated steps to get evaluation studies made by independent agencies. Financial inclusion should be made an integral part of the District Credit Plans and not merely as an additional column in the quarterly reporting format. The real thrill is in ensuring that all the credit needs of the needy poor are met by the banks and merely by opening no-frills accounts.