Banking in South — A story of success

South India has had a long tradition of financial institutions. The region has been the birthplace of several banks, not to speak of non-banks and informal (but solid) financial services institutions. The latter includes institutions such as chit funds, nidhis and mutual benefit funds which, due to their peculiarity to South India, have acquired the sobriquet “dhoti-clad institutions”.

Some of these have been around for nearly a century-and-a-half. You wouldn't have heard of them, as they provide their services quietly, yet inclusively. A good example is the Sriman Madhwa Siddhanta Onnahini Nidhi in Chennai, which was started around the time of India's First War of Independence — and is still alive and well. Not surprising, therefore, that South India should have spawned many banks. Today, there is a good mix of both public and private sector banks — ten under each category. All but one or two are doing extremely well, and even those that are not, are on the way back to prosperity. All but two are listed on the stock exchanges and actively traded.

Secret of longevity

The point about these banks is that they have a long history. Take, for instance, the City Union Bank, which is today 107 years old. The public sector Indian Bank is 104, and by a remarkable coincidence, started functioning on August 15 — 40 years before the date would become epochal in Indian history. Indian Overseas Bank is celebrating its 75{+t}{+h} year right now.

Conservatism has been the defining characteristic feature of South Indians and it is not strange that that trait is amply reflected in southern banks. Conservatism, and an approach based more on personal bonds rather than paper bonds, have been the hallmark of south Indian banks, which has given them soundness even if not size.

Steadfast fidelity to trust is the golden thread that runs across all these banks. Promoters of banks have taken varied approach to business, but have never swerved on their fiduciary responsibilities. For instance, while some promoter-managements have been happy to be small and sound (City Union Bank, Lakshmi Vilas Bank, South Indian Bank), a few others have handed over the keys to a larger entity — such as Bank of Madura, which went into ICICI Bank's hands.)

Today, South India is among the best banked regions in the country. The region accounts for 28 per cent of branches, 21 per cent of deposits and 27 per cent of credit of all scheduled commercial banks in the country. It has more bank branches than any other region in the country — again, a reflection of the rich banking heritage. The South had 24,948 branches at the end of March 2011. Comparatively, North had 15,599, East 14,719, Central 17,714 and the West 13,809.

Credit-deposit ratio

What is noteworthy is the credit-deposit ratio, which is the highest among all the (six) regions. In South, 94 per cent of the deposits have been deployed for lending, compared with 78 per cent for the Western region, 47 per cent for the Central, 51 per cent for the Eastern and 82 per cent for the Northern. If you disaggregate the numbers a bit more, you get a clearer picture. South is the only region where the rural C-D ratio exceeds 100 per cent — which means rural people borrow more than they deposit. Comparatively, North is 60 per cent, West is 53, East 39 and Central 29. If you look at semi-urban centres, figures show the South enjoys the highest credit-deposit ratio — 74 per cent, compared with 56 per cent in the North, 29 per cent in the East, 44 per cent Central and 45 per cent of the West. High C-D ratios reflect a good credit culture. But surprisingly, the semi-urban areas of the southern region, which have 33 per cent of the branches, pick up less credit than they deposit.

The semi-urban centres are typically traders and small business-dominated economies. There are two implications of this. First, the semi-urban areas are prosperous — after all, they bring in a fifth of the total deposits of the region, the highest for any region. Second, there is a huge potential for further engagement. 

Source:Business Line