Co-Operative Banks Have Their Own Niche - Shrinivas Joshi, CEO, Shamrao Vithal Co-operative Bank

Co-operative banks are still growing at more than 15-18 per cent YoY. Competition will always be there, but everyone has their own share of the pie.

Can you tell us a little about the co-operative banking movement?

There are over 1600 co-operative banks in India, having more than 7900 branches, with total Deposits of Rs 2385 billion and total Advances of Rs 1580 billion as on March 2012. The cooperative banks have predominant presence in four states (Maharashtra, Andhra Pradesh, Gujarat and Karnataka). Over a period of time, co-operative banks are doing better and in March 2012, they have performed substantially better than the earlier year.

Co-operative banks have a presence in urban centres as well as rural areas. On an all-India basis, urban cooperative banks form about 3.5 per cent of the total business of the total banking industry. 

Many of the co-operative banks have a minimum CRR of nine per cent today and the quality of assets has also improved over the past two years.

NBFCs are being granted banking licenses by the RBI to enter into banking. Do you anticipate any competition coming from them?

Earlier, when new generation banks like ICICI, HDFC, YES Bank etc. came in there was concern that it would mean competition for co-operative banks, but the co-operative banks are still growing at more than 15-18 per cent YoY. Competition will always be there, but everyone has their own share of the pie. 

Moreover, co-operative banking is more a personalised sort of banking, offering banking services at competitive rates with a humane touch, which make banking a delightful experience.

Today, with NBFCs, PSUs and Private Banks in fray, co-operative banks are still growing at 15-18 per cent, with better financials year after year. Even with new banks coming up, I believe co-operative banks will continue to flourish.

Do you feel that better growth is only a result of personalised service, or the fact that co-operative banks are targeting a section of the audience that nationalised and private banks are not targeting?

Earlier, the forte of co-operative banks was retail banking, subsequently, they entered into wholesale banking. There are many micro, small and medium-sized industries today in India which, I believe, are about a crore in number. These can be targeted by co-operative banks. Besides this, one-to-one relationship with customers will always result in better business opportunities.

Do you feel that even if the lending rates are comparatively higher than the NBFCs, customers will come to co-operative banks? 

Today co-operative banks are lending at very reasonable rates and offer all banking products at a competitive price. In the past year, SVC has increased its advances to the extent of 22 per cent in a competitive and challenging economic environment due to customised products, service and quick TAT (Turn Around Time) at competitive rates. 
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You spoke about the growth in advances. How have co-operative banks managed to maintain such good asset quality when the other nationalised banks are facing some problems in their NPAs?

At one point of time, co-operative banks had gross NPAs that exceeded 15-20 per cent, which has come down to seven per cent now. This lowering trajectory of NPAs has been due to selective sector exposures, better assessment, controls and recovery efforts. 

While in other sectors the NPAs are rising, for co-operative banks these are coming down. The current figure of seven per cent is expected to come down to five per cent shortly.

Which are the sectors from which do you see the future growth coming in? 

Co-operative banks today are looking towards Retail loans as well as MSME loans. As I mentioned, MSMEs are nearly a crore in number. Today, not many people are giving them good service, timely loans and assistance. Finance is a major issue for this segment, and co-operative banks can help them by assessing their requirements and providing finance to them in time. We look for- ward to MSME growth in the future. Of course, you have to be very selective. 

SVC is mainly in the industrial (MSME) sector, and has just 3.20 per cent Gross NPAs today. This shows that even though there is a slowdown, you can still do better with selective lending. 

Do you feel that the Tier III and IV cities are going to drive growth going ahead?

Well, we continue to operate in Tier I and II cities. Today, however, you can’t open a factory in Mumbai. So, expansion can happen only in Tier III and IV cities. Growth is going to happen in these cities, and we have to make our presence felt there. 

I believe there are about six lakh villages in India. We can’t go to every small place, we have to have a hub – from a particular central place, we can control business within a radius of say 100 kilometres and provide banking services in that area. There is a huge scope for co-operative banks to flourish and they can grow at a rate of over 15 per cent YoY.

There have been instances in the past of some smaller co-operative banks being acquired by the larger banks. Do you feel that there will be some sort of consolidation happening in the co-operative space?

Let me give you an example. It was said that with the arrival of malls, the Kirana shops will shut down. Today, you see both shops and big malls co-exist. Take the example of hotels – there are big five star hotels, medium sized ones, tea stalls and roadside dhabas too. All of them are functioning. It’s not as if growth makes the smaller players disappear. Everyone has a niche and there is scope for everybody.

So, consolidation is a distant possibility. Very weak banks may get merged into bigger banks. But let me tell you, co-operative banks will flourish over the years. At the end of the day, in any co-operative bank the personalised service, the attention that is given to an individual is much more than customers received in any other bank. We have ATMs, but people still prefer to come inside, have a cup of tea with us. They want to talk to someone, and you cannot substitute personalised service by a machine. I see that as very important.
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In the past, we have seen many co-operative banks going bust due to lack of professional management or certain other issues. Do you see those issues being left behind in the past and professional management coming into banks?

SVC has taken over nearly four other co-operative banks over the past six-seven years. Now, there are not too many weak banks around. Over the last couple of years, banks have improved their finances, NPAs have come down and there is better governance. There are two professional directors now on the board of co-operative banks. This brings more transparency as well as more credibility to your balance sheet. That is why I see a bright and good future for co-operative banks.

I represent co-operative banks on the Indian Banks’ Association (IBA) board and am also the Chairman of the IBA Committee on Member Co-operative Banks. We always ensure that we take up the problems of co-operative banks with the RBI and the central government, and try to sort them out through the IBA channel. In many cases, we have got redressal for problems because of the IBA’s intervention.

The four states in which co-operative banks have a presence are also known for micro-finance over the last few years. Do you feel that we are replacing micro-finance, or that co-operative banks are providing a parallel model for micro-finance, which is considered bad because of the developments that happened in Andhra Pradesh?

The co-operative momentum in Maharashtra and these four states has happened in a significant way. There are credit societies as well as co-operative banks and Micro-financing was already happening with loans of Rs 5000-10000 to individuals, especially in rural and smaller towns. So, co-operative banks are already in micro-financing. Rather, they understand the need and they know whom to give loans to.

What happened in Andhra Pradesh was because they were giving loans at unreasonable rates. Today, co-operative banks are providing micro-finance at reasonable rates. That is why they will sustain. Rates around 12-14 per cent can be considered reasonable – charging 24-28 per cent interest is highly unreasonable. As you know, higher the rate, higher the risk.

With regard to the funds which SVC raises, do you feel that you are getting it at competitive rates or at lower rates to sustain your spread? 

As far as SVC is concerned, today we have a healthy and transparent balance sheet and good profits. Last year, we crossed Rs 15000 crore in business, with a net profit of Rs 94 crore. With a good balance sheet, we attract deposits at very competitive rates. 

Our rates are not much higher than those of nationalised banks. They are in line with the market, but even so, we are getting good deposits. Last year, our growth was nearly 17 per cent on deposits and that on advances was 22 per cent. This mainly happened because today we are a trusted name. We have a good reputation because of our professionalism, ethics, transparency and integrity, which is very important according to me. People always like such banks and prefer to deposit their money there. We will never give abnormally higher rates but will be with the market. So far, we have seen good growth and the spreads are sustainable. If you get money at reasonable rates and then lend, you can generate profits for sustained growth.

Can you tell us about the bank’s retail (CASA) deposits?

Our CASA stands at about 20 per cent today, which we feel should go up to at least 25 per cent. But now a days, I have seen a lot of awareness among people. They do not keep money idle, and usually shift to term deposits. That’s why it is difficult to increase CASA. Over the last two-three years, CASA is coming down across Banking Industry. 
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What is more important is despite this 20 per cent CASA rate that we have today, our spread is good because our NPAs are low. The crux of the matter is that you have to ensure that the money that you give should come back. If you deal with the lowest amount of NPAs, you can work even with lower CASA. Ideally we should take the CASA to 25 per cent.

Treasury operations is one of the area that has helped many banks to grow better in the last few years. As per the recent RBI norms, the yield curves have gone up again. What impact do you think this will have on the treasury income of co-operative banks? Are there any negatives that you see coming up on this front? 

Most of the co-operative banks have 65-70 per cent plus CD ratio. When you have less money available with you, less money goes to treasury operations. Where the CD ratio is low, the money goes in treasury. When the money that goes into treasury is less, the impact will be less as a large chunk of money has gone into advances. Whatever is remaining is only a balancing thing that needs to be put in the treasury. 

As far as SVC is concerned, we ensure that our treasury is managed in such a way that there is not too much mark-to-market losses for AFS. Today, we have no mark-to-market losses even after what has happened in the past few days.

Do you feel that the co-operative bank movement may spread to more states beyond these four states? Will co-operative banks get a larger canvas in other states, with early movers getting an advantage? 

The RBI is allowing co-operative banks to add operations in one adjacent state from where they are already operating on a yearly basis. For example, we are in eight states now with a spread of 144 branches, and next year, we will probably move to Rajasthan, which will be the ninth state. In my opinion, as the bigger co-operative banks move to the other states, the co-operative movement will automatically spread. There has to be someone who has to direct and guide the people. Wherever the large banks will go, the co-operative movement will always prosper.

Can you tell us about your bank’s efforts on the technological front? 

We started developing our software called ‘Genius’ in 1995. Today, we have an absolutely robust software, which is being used in about 400-500 branches of 50 different banks and another 30-40 enquiries have come. So, shortly SVC’s software will be used in nearly 100 banks across India. Such is the robustness of the software. 

Core banking has been made compulsory by December, without which banks will not get permission for NEFT, RTGS, etc. We are selling Core Banking Software, and this is widely acknowledged by everyone. SVC is giving the facility across at a very reasonable rate. People are very happy and we have a lot of enquiries.