A pioneer's progress

Karnataka-based banks adapt themselves to meet the challenges of financial sector reforms and stay ahead of the competition.

THE southern State of Karnataka, especially the region comprising its coastal districts of Udipi and Dakshina Kannada, is the cradle of banking in the country. Seven of the country's leading banks - Canara Bank, Syndicate Bank, Corporation Bank, Vijaya Bank, Karnataka Bank, Vysya Bank and the State Bank of Mysore (SBM) - have their origins in Karnataka. Of these, the first five were started in either Udupi or Dakshina Kannada district. As many as 22 banks were established in these two districts between 1880 and 1935, nine of them in the region's commercial hub of Mangalore.

The reason for the growth of banking in the coastal region is not far to seek. Sandwiched between the Western Ghats and the Arabian Sea, the region remained inaccessible for long and was not conducive to the setting up of industries. Therefore, early entrepreneurs took to selling financial services. And most of them succeeded. Even today these coastal districts maintain a strong banking culture, with almost every other household having a member employed in the banking sector. These districts still have the best distribution of banks in the country - a branch for every 500 persons as against the national ratio of one for every 12,000 people. Much of this region's infrastructure and industrial development has been underwritten by these banks.

Modern banking was introduced in the region in 1868 when the Presidency Bank of Madras (which was started in 1843) opened a branch to cater to the needs of British firms which exported plantation produce. In 1921, this bank became part of the Imperial Bank of India, the precursor of the State Bank of India. Another boost to the financial sector in the region came with the passing of the Indian Cooperative Societies Act in 1912. The Act paved the way for a spurt in cooperative societies. Several private banks also sprang up during the Independence movement. Karnataka Bank, which was promoted by a group of enterprising agriculturists, lawyers and businessmen as the common man's bank, was an offshoot of the Swadeshi Movement of 1905.

Today, while the State Bank of Mysore, Canara Bank, Vijaya Bank and Vysya Bank have located their headquarters in Bangalore, Corporation Bank, Syndicate Bank and Karnataka Bank have theirs in Mangalore or in neighbouring Manipal.

Although many of, if not all, these banks started with the intention of serving the needs of a particular community or profession - primarily agriculture - over the years, they have become the catalysts of growth for all communities and the entire region. Most of them were nationalised in the first or second rounds of nationalisation, in 1969 and 1980 respectively. Nationalisation also meant that the focus of banking underwent a change in many of these banks and `social banking' became the key word.

If nationalisation was the first instance when these banks did a major policy rethink, the recent financial sector reforms have made them adapt themselves to the new challenges. In the post-liberalisation phase, these banks have had to rework their strategies. While the changes in the banking sector have had their advantages, such as increased autonomy, they have also meant pressure on the banks to turn out higher profits and competition from multinational banks.

Novel methods were used to establish many of these banks. In 1906 Ammembai Subba Rao Pai, the founder of Canara Bank, went from door to door, to collect handfuls of rice from each household, pooled the rice, sold it and used the receipts for the bank's capital. Today Canara Bank has 2,424 branches, and in 2002-03 it recorded a net profit of Rs.1,019 crores, up by 37.52 per cent over the previous year (the highest among public sector banks). The bank's first four-digit net profit was mainly owing to a spurt in income from advances, sustained treasury income and an absolute decline in its interest expenditure. In 2002-03, the bank went in for its Initial Public Offer and raised Rs.110 crores.

In order to stay ahead of the competition, the bank has worked out a five-pronged strategy: EPOCH, which stands for earning, productivity, operational efficiency, credit off-take and high-tech applications. The bank has already computerised 90 per cent of its business and 75 per cent of its branches. Computerisation has meant surplus staff in many of the branches. They are being redeployed for marketing and recovery duties.

STARTED by the visionary, Sir M. Visvesvaraya, in 1913 with the primary objective of inculcating the banking habit among the masses and for the economic development of the old Mysore state, the State Bank of Mysore even today swears by the dictum "safe, conservative banking". Nevertheless, profits went up to Rs.116 crores in 2002-03 (up by 76 per cent as compared to the previous financial year). Explained M. Sitarama Murty, Managing Director: "We do not build up business at the cost of the future. There is no point in taking decisions only looking at the balance sheet. You have to plan with the future in mind. Decisions that I and my Board take today will impact on the bank five, six years down the line." Said Niranjan Bardalai, Chief General Manager of the bank: "We have prudential norms for the various segments of banking, be it capital exposure or individual exposure. We also have in place an asset and risk management system.''

In a bid to broad base its business, SBM made retail banking one of its thrust areas. It is ahead of the targets fixed by the Government of India in the national priority areas like extending advances for the small-scale sector, agriculture and small businesses. Besides, the SBM has expanded its retail banking portfolio to include home loans, car financing and educational and infrastructure financing. In infrastructure financing - especially roads and power projects - the SBM has made advances to both public sector enterprises such as the National Thermal Power Corporation and the National Hydro Electric Power Finance Corporation, and independent power producers in the private sector.

Today the bank has 610 branches. During the last financial year it recorded business worth Rs.15,500 crores, earning a profit of Rs.116 crores.

FOUNDED in 1906 in the temple town of Udupi, Corporation Bank has today emerged as one of the premier public sector banks. Nationalised in 1980, the bank has withstood the challenges of the financial sector reforms and turned out excellent performances during the past few years. In fact, business doubled between 1999 and 2002.

Its Chairman and Managing Director, K. Cherian Varghese, says: "Managing and planning for the future in these times of uncertainties is the challenge before the bank." "The rules have changed. Earlier we looked to the Reserve Bank of India to fix the rates of interest for both advances and deposits. Today it is not so, banks have to do so themselves. Even the prime lending rate regime has gone." K. Basavaraju, a senior manager with the bank, says: "To put it simply we just added another Corporation Bank."

The bank has a network of 684 branches, nearly half of which are located in rural and semi-rural centres. The bank's total business (a combination of advances and deposits) at the end of March 2003 stood at Rs.33,753.74 crores. The net profit for the financial year ending March 2003 was Rs.416 crores (an increase of 35 per cent over the previous year). The net worth of the bank increased by 15.8 per cent and stands at Rs.2,370.20 crores.

For Syndicate Bank, the financial year 2002-03 was a good one, with profits increasing by over 37 per cent to Rs.344.13 crores compared with the previous year. While the bank's global business crossed the Rs.47,687-crore mark, its net worth was Rs.1,376.02 crores. The bank's new mantra is e-banking and delivering tele and Internet banking. Of the banks 1,741 branches, 52 are e-enabled, with another 150 expected to be added by the end of the year. Even loans can be applied for through the Internet by downloading forms. Syndicate Bank was one of the first public sector banks to lay emphasis on centralised banking solutions.

The bank's thrust continues to be in the retail sector, especially education, home and car loans. Home loans are disbursed within 48 hours, speed being the essence. Last March the bank launched its global debit card and has so far chalked up over 50,000 customers. For a greater network of ATM (debit card) operations, Syndicate Bank has entered into an agreement with five other banks.