Vinod Chaplot, CEO, Udaipur Mahila Samridhi Bank, and Vitthal Dhanani, GM, Varachha Coop Bank – discuss the evolving scenario for cooperative banks in the wake of PSU banks’ mergers and NBFC crisis:
Mehul Dani: What is the post-PSU banks’ merger scenario for cooperative banks in terms of profitability and business growth in the wake of increased competition?
Vinod Chaplot: Post-PSU banks’ merger, a new phase of banking has started in India. Now banks – whether large of small – have to play their role in different customer segments. Yes, after digitization, cooperative banks are also normal banks, and they compete as per their size. In my view, middle class customers of PSU banks are looking for better customer services and only cooperative banks can cater to their needs with personal relations and new age technology. So, the reputed, transparent and new age cooperative banks definitely have a full chance to grow their business with new customers and can
increase profitability.
Vitthal Dhanani: There are big differences between PSU banks and cooperative banks in terms of size of funds, RBI norms and area of operations. By merger, PSU banks can spread their business easily with their widened branch network and goodwill of each bank. It may affect the business of cooperative banks at some level. It may force small cooperative banks to merge with larger cooperative banks to overcome their difficulties and ease pressure.
What are the credit growth prospects current FY, in the prevailing situation?
Vinod Chaplot: Credit growth in Q1 and Q2 2019-20 for cooperative banks in general is not satisfactory and looking at the current economic situation, I don’t think that a bank can have healthy proposals from the market. No doubt, the steps being taken by the government will help, but these may be only up to the holding on the situation. At present, good customers facing liquidity crunch are shifting from one bank to another or getting top-ups to hold the situation, as they are hoping for the best….what else can they do?
Vitthal Dhanani: Credit growth in the past 2 quarters of the current FY is not much appreciable. Due to monetary crisis in the country since the last 2 years, new loans have not been accessible. Although there is big scope for new loans in the market, because of the recent negative market scenario, the situation of low credit growth will continue in the near future too.
What is the fallout of the NBFC crisis on lending and impact on cooperative banks?
Vinod Chaplot: There is a big difference in lending patterns of NBFCs and banks, but some cooperative banks were following the same practice, like having credit appraisals just for lending, and not for security. I think it’s a big lesson for all banks that a bank is not a proprietary concern. The standard norms have to be followed and especially cooperative banks should strengthen their loan policies and try to increasingly lend to small businesses. The culture of cooperative banks is totally different. So, I think cooperative banks will not be affected by the NBFC crisis. Cooperative banks can attract MSMEs and SSIs and grow their business. The subsidized home loan schemes are also open for cooperative banks, which have provision for securing in a group borrowing. Cooperative banks should get into lower ticket home loans.
Vitthal Dhanani: The NBFCs’ share of credit has increased because they were lending in sectors where banks did not want to go, such as personal loans and commercial loans. NBFCs had borrowed short term loans from banks and mutual funds for lending to developers of long-term projects, which got held up because of various factors. Trillions of rupees are locked in real estate, building construction and long trem infrastructure projects. NBFCs were able to access cheap funds easily as there was lot of cash in the system. They were able to grow their loan portfolios at double the pace of banks. NBFC get funds from banks and other financial institutions for lending to SHGs. These lending comes under priority sector for the lending banks and NBFCs make earnings with higher margins. Due to some deviation, a crisis has hit the NBFC sector. Besides such deviation, misappropriation or diversion of short term borrowing into long term investments like real estate and infra projects is also the reason for the slowdown. UCBs in semi-urban areas in the present scenario are not hit by the NBFC crisis. Only UCBs in metro cities may be affected to some extent.
