Home-grown banks making a mark

These institutions, with over 100 years of unique history, have made key contributions to the growth of the State

March 24, 2022 07:30 pm | Updated 08:50 pm IST - CHENNAI

Indian Bank was  incorporated on March 5, 1907, with an authorised capital of ₹20 lakh. It started  its business on August 15 that year.

Indian Bank was incorporated on March 5, 1907, with an authorised capital of ₹20 lakh. It started its business on August 15 that year. | Photo Credit: R. RAGU

The vibrant banking sector in Tamil Nadu has played a vital role in the development of the State’s economy Home-grown banks in the public as well as private sectors, with over 100 years of unique history, have made key contributions.

The idea of forming one of the home-grown banks, the Indian Bank, emerged from a major financial crisis in 1906, which led to the collapse of the Arbuthnot & Co. Krishnaswami Iyer, the lawyer who successfully handled the Arbuthnot bankruptcy case, came up with the idea of starting an indigenous venture for banking services. He founded Indian Bank and requested Annamalai and Ramasamy Chettiar to mobilise deposits. The bank was incorporated on March 5, 1907, with an authorised capital of ₹20 lakh and commenced its business on August 15, 1907.

Indian Overseas Bank was founded on February 10, 1937, by Chidambaram Chettyar with the main objective of specialising in foreign exchange business. The bank started business simultaneously at Karaikudi, Chennai and Rangoon in Burma (now Myanmar), followed by a branch in Penang, Malaysia.

Both Indian Bank and Indian Overseas Bank were among the 14 major banks nationalised in 1969, and have overcome many challenges. Indian Bank posted a record loss of over ₹1,000 crore in 1995-1996, hit by a loan scam. Thanks to a turnaround plan, the bank emerged profitable in 2001-02 and has since maintained a conservative approach towards lending.

Allahabad Bank was amalgamated with Indian Bank, and the bank commenced its operation as an amalgamated entity on April 1, 2020. The system integration was completed in February last year. As of December 2021, Indian Bank’s total business grew 6% to ₹9,6,3007 crore from ₹9,10,894 crore in December 2020.

Indian Overseas Bank, too, faced its share of financial troubles. In 2015, the RBI placed the bank under the Prompt Corrective Action Framework because of its weak financial position. Last year, it was removed from the framework. Its total business grew 7.47% to ₹4,92,507 crore as in December 2021 from ₹4,58,276 crore as in December 2020.

The State has been home to some of the older private sector banks as well. One of the oldest such banks is Karur Vysya Bank (KVB) founded by M.A. Venkatarama Chettiar and Athi Krishna Chettiar in 1916 with a seed capital of ₹1.20 lakh with the aim of supporting agriculture and trade in the town of Karur.

“KVB is one of the few banking institutions in the country to function in its original form (no change of name, amalgamations, etc.) for over 100 years. We have consistently been making profit since inception and have never missed payment of dividend (except once during the COVID-19 pandemic as advised by the RBI),” said B. Ramesh Babu, MD & CEO, Karur Vysya Bank.

He said directors were not permitted to borrow from the bank. “The bank believes in continuation of its tradition and adapts itself to changing times by adopting technology for its operations. Our retail loans and small business loans are fully on the digital platform and the quality of loans underwritten digitally is good. The digital platform is highly scalable, and we will make use of this to expand our assets,” Mr. Babu said.

The Kumbakonam Bank Limited, incorporated on October 31, 1904, became City Union Bank Limited in December 1987. The bank has not seen a single day of labour strike. It is generating profit and paying dividends continuously since inception.

Another successful old private sector bank is the Thoothukudi-based Tamilnad Mercantile Bank (TMB) Limited, originally incorporated as Nadar Bank Limited in 1921. The idea of starting the bank emerged under the guidance of Nadar business community at an anniversary meeting of Nadar Mahajana Sangam in 1920. Though the bank has faced ownership tussles in the past, it has remained one of the most profitable old private sector banks, and is gearing up for an initial public offering.

According to TMB’s draft red herring prospectus, Tamil Nadu is one of the fastest growing States with continued focus on small and medium units and textile industry. Citing a CRISIL report, it said Tamil Nadu’s bank credit to the GDP stands at 53%, compared with 89% in the case of Maharashtra and 37% in Gujarat during fiscal 2020. “Tamil Nadu is under-penetrated which presents an opportunity for further growth in GDP funded by bank loans,” it added.

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