After the deadly monsoon rains in Kerala claimed 216 lives since August 8 and displaced over 7.24 lakh people from their homes, Thrissur-based South Indian Bank on Tuesday said that rebuilding flood-hit state may spur growth for the bank.
In an interview to CNBC-TV18, VG Mathew, managing director and chief executive officer, said that South Indian Bank has a loan exposure of 57 percent in Kerala.
Watch: All branches in Kerala to be functional from Thursday, says South Indian Bank
Mathew said, "If you look at major city centres like Thiruvananthapuram, Ernakulam, Thrissur and Kannur, they are not affected seriously at all. Problem is about the rural areas. When it comes to rural areas, we have just about 42 branches that is 10 percent of the branches are in the rural areas for us."
Edited excerpts: Q) Can you tell us what the impact of the floods could be on your business
A) As of yesterday, only 35 branches out of the 464 branches in Kerala were not functional and all of them will be functional from Thursday or Friday. We are every sure about that. At the same time, all the data centre operations which were in Cochin were shifted to our disaster recovery (DR) centre in Bengaluru on August 16th night. We have done the shifting and everything is functioning absolutely seamlessly from Bengaluru and we may shift back maybe tonight or tomorrow.
Q) More generally what is the total loan exposure of your book to Kerala itself and what is the split, how much would be corporate, how much would be retail and how much would be agricultural?
A) Primarily, this is a major liability gathering centre for us. So 57 percent of our total deposits are from Kerala, but when it comes to advances, only 40 percent are from Kerala. Of this, retail would be around 50 percent. That means, I would say that of the total advances, 20 percent would be retail advances in Kerala.
Q) You sense trouble there? Do you expect that people will want more time to repay in that category of 20 percent of your book?
A) If you look at major city centres like Thiruvananthapuram, Ernakulam, Thrissur and Kannur, they are not affected seriously at all. Problem is about the rural areas and when it comes to rural areas, we have just about 42 branches that is 10 percent of the branches are in the rural areas for us. These branches typically would be into agricultural advances and one major comfort that we are having is around 35 percent of the agricultural advances in Kerala are collateralised with gold.
So that is a very important factor for us and I am sure the magnitude of the calamity would definitely have impacted the repayment capacity particularly when it comes to crop loan etc. Q) Just to scratch a point a bit, can you tell us if you all have made a districtwise study, you said 10 branches are rural branches, can you give us some idea of what is that quantum of loan that may have a problem, how much is the lending in Pathanamthitta or the districts which are under water as well, have you approached the Reserve Bank of India (RBI) or the Indian Banks' Association (IBA) for any dispensation?
A) The more important thing is Kerala government has declared Kottayam, other districts, about five villages in Pathanamthitta as flood affected. That would correspond to two regions of our bank, that is Kottayam and Thiruvalla regions.
Thiruvalla region has about Rs 460 crore of agricultural advances and Kottayam has got about Rs 690 crore of agricultural advances. Total around Rs 1,100 crore, which would also include plantation, activities like marine products, sports and things like that. Again, there is a component which is significantly collateralised with gold.
So, what we are talking about is only a very limited damage that can come out of any crop losses and there als, to answer the next part of the question, only the state level bankers' committee (SLBC) has taken stock of the position yesterday and no special dispensation would be required from RBI, because the guidelines are very specific on how to deal with calamity. There are very clear guidelines under the master direction of RBI. The SLBC works precisely on those guidelines only.
Q) An extension of the crop loan is automatic?
A) It's more like – if it's an production credit that is given, then the entire credit as well as the interest accrued on that can be converted into a term loan repayable over a longer period of time and with a moratorium of at least one year, and if the crop loss is more than 50 percent, the period can be even five years. Total repayment period can be five years, moratorium can be two years. That is a very good dispensation. I don’t think any other comfort is required from RBI. That doesn’t lead to non-performing assets (NPA) position also.
Q) There is also a lot of demand opportunities as the reconstruction activity starts to pick up, last quarter your loan growth was quite healthy at almost 19 percent, what kind of an average loan growth do you expect to see over the next few quarters?
A) We are targeting - what we have committed to the market is around 20 percent, internal target is slightly higher, maybe more like 22-24 percent is the kind of target that we are working on as far as the retail loans are concerned.
As far as the corporate book is concerned, we have been following a policy of staying away from all stressed sectors from 2014 and therefore, we have to only deal with the corporate deals, which are of origination date prior to 2014.
Q) Already we have seen a rising trend of loan growth in your bank over the last four quarters it has been 12 percent, 16 percent, 17.6 percent and the last number was 18.8 percent loan growth, would you do even better because people will want loans for reconstruction?
A) Yes, in fact in Kerala, I am very sure that there would be significant investment that would be going in the infrastructure improvement. For example, the roads, the dams, the bridges, all those things would require significant amount of repair. Therefore, the contractors in Kerala will do very well, that is the statement that is expected to do very well. Similarly, if you look at the home loans etc., I am sure a lot of affected people would require a little bit of top-up loan, which is also permitted under the RBI dispensation, which I mentioned sometime back.
Similarly, the agricultural, the farmers and even the MSMEs might require additional accommodation and definitely there is also a strong rebuild that will happen in Kerala. That is another trend that we noticed in Kerala. There is a lot of a positivism and interest in growth so that would come up soon after this crisis is over. So, there would be a reasonable growth for the bank.
A) Yes, in fact we are not expecting, because what is provided for in the RBI dispensation, which is approved by the SLBC, I haven’t seen the minutes yet but I am sure it would be in-line with the RBI guidelines and obviously we will all be following that and we would be completing the exercise in the next one month or so.
Q) Just to summarise, you see no delay in the repayments of this Rs 1,100 crore agricultural advances that you have exposure to, right?