PASSING THROUGH DIFFERENT stages of slow growth and neglect, the rural banking sector in India is now showing signs of sustainable viability and efficiency. While the thrust on financial inclusion has been driving banks to revisit the rural scene more visibly, with noise and pomp, the gramin banks have been silently expanding their business in their home ground. They have conclusively proved that rural banking can be made a viable business proposition. As their financial results of FY 2012 reveal, out of 82 gramin banks, 78 have earned profits. Interestingly, even the youngest among them, Puduvai Bharathiar Grama Bank, which was established in Puducherry only four years ago in 2008, has declared a net profit of Rs 2.06 crore in FY 2012. It has already opened 27 branches and handles a total business of Rs 205 crore.
Improved bottom lines
Consolidation of the gramin banks through their mergers at the state-level, for enlarging their areas of operation, was the most crucial factor. This has considerably enhanced their operational viability. Some of them, confined to only one or two districts earlier, were subjected to ‘suffocating developments’ before the mergers. As a result of the mergers, the number of gramin banks came down from 196 to 82 and as also the number of loss making gramin banks. Among the four weaker banks, the net losses of three banks are less than Rs 4 crore each and only one has incurred a loss of Rs 18 crore. The accumulated losses are being gradually wiped out.
Five out of the 78 banks have recorded a net profit of more than Rs 100 crore, the financial performance being better compared to two of the old generation banks in the private sector, despite the fact that they operate with larger volume of business and despite having presence in many urban centres.
Expansion of the total volume of business and their spatial expansion are the other two factors, which have made them stronger. Among the top five, the biggest gramin bank in terms of number of branches, comes from Bihar, one of the BIMARU states. Uttar Bihar Gramin Bank, sponsored by Central Bank of India, operating with a network of 910 branches in18 districts has declared a net profit of Rs.118 crore. Another bank from the BIMARU groups, namely Prathama Bank in Uttar Pradesh, sponsored by Syndicate Bank, with a network of 242 branches has the third highest net profit of Rs.128 crore.
With increasing business volume, they have adopted IT efficiently with the support of the sponsoring banks. All the gramin banks have now migrated to the CBS system. And about ten of them have gone ahead in installing biometric enabled ATMs.
Diversified credit pattern
On an average, these banks are operating with fairly higher Credit Deposit (CD) ratio of 64 per cent as compared to the commercial banks in rural areas who score 55 per cent. By the way, Pandyan Grama Bank operates with a CD ratio of 130 per cent. Though the NPA ratios are causing concern in some states, it is reassuring to note that 12 gramin banks have reduced their net NPA ratio to zero by making adequate provisions in their balance sheets.
The removal of the restriction on extending credit to on-target groups has helped morph these rural banks as financial super markets. Their goal should be to go beyond selling the rationed financial services to the target groups at regulated prices. A beginning in this direction was made by a couple of banks, which have joined the consortium of large advances as very small members. Prathama Bank is one of them which has financed under consortium arrangement to Dharmpur Sugar Mills Ltd with a present exposure of Rs. 50 crore. This is the largest exposure undertaken by an RRB in the country.
Extending credit facilities to agro-based industries in a small measure through the consortium arrangement is an appropriate means of diversifying the credit pattern of gramin banks. It is a good beginning.