Banks and Kerala floods
Banking Frontiers looked at the recent impact of floods in Kerala in the operations of banks in 2 districts – Thrissur and Malappuram:
The recent floods in Kerala have been quite devastating, causing considerable amount of damage to both life and property. While the exact magnitude of the losses is not fully known, indications are that it would run into billions of rupees. Thrissur and Malappuram have been two of the districts in the state that were badly affected and bankers from these two districts say banking operations have been impacted very badly.
T.K. Dileepkumar, general manager, Irinjalakuda Town Urban Cooperative Bank (ITU Bank) in Thrissur district, says the incessant rains and consequent flooding did prevent the staff from attending office for 2 days and consequently all operations in the branches and head office had to be suspended. Two of its 19 branches – Annamanada and Kattoor – could not function as they were flooded. Also, 2 of the bank’s ATMs got submerged in flood waters and became dysfunctional. He adds that at present, things are better and returning to normal with all the branches functioning normally.
IMPACT OF VARIOUS SECTORS
Dileepkumar maintains that the floods have impacted all the major sectors – agriculture and allied activities, retail trade, including consumer loans for vehicles and small industries – and fresh disbursals have been affected as the borrowers could not come to the branches. However, he is confident there could be a spurt in the demand for funding in the immediate future as there will be need for assistance to build destroyed homes and purchase household appliances. Many of the bank’s borrowers have lost heavily in the floods. While the bank has not fully calculated the damage, he feels the losses could be around `7 million. However, most of the loans are insured and the borrowers could receive compensation from the insurance companies.
Dileepkumar feels re-scheduling of debts is one way of mitigating the sufferings of the flood-affected borrowers, but loans granted to BPL (Below Poverty Line) borrowers could get stuck and, perhaps, have to be written off. Repayment schedules of all the other loans could be extended and recovery can be expected.
Dileepkumar said the bank’s data centers were not affected by the floods as the servers were located on the upper floors of the head office building and all the data resident on the servers was safer and secure. He does not expect to face any problem on account of data loss.
INSURANCE IS NECESSARY
He urges individual borrowers to have all their household items and appliances insured so that financial damage is minimum in case of such an exigency in future. Even larger borrowers should not under-insure their goods and other properties to save money as this could lead to avoidable losses. The bank, on its part, is also taking necessary steps to ensure that all its properties are adequately insured against natural disasters. Besides, it is felt that wherever feasible, data centers would be housed only in upper floors of the buildings.
For Kottakkal Cooperative Urban Bank in Kottakkal in Malappuram district, the story is not very different. As the district was one of the worst-hit in the floods, some of the bank’s branches could not function at all for a few days as staff also could not get to work. The branches themselves were flooded because some of them were located in low-lying areas and were flooded. However, as the bank’s professional director K. Mohamed Saleem puts it: “The disruption was only for a few days and with water receding fast, normal operations were resumed soon.” Thankfully’ all the 24 ATMs of the bank were functioning normally during the flood-hit days.
SMALL BUSINESSES AFFECTED
He estimates the impact on the business of the bank as a result of the floods to be in the range of `2 million. Kottakkal is place where the famous Ayurveda treatment center is located. Saleem points out that as much as 40% of the bank’s business is from small industries, which includes those units engaged in the preparation of herbs for ayurvedic medicines.
Agricultural business, constituting some 20% of its business, also took a hit. However, with a total business of almost `10 billion, the impact of the floods on the total business of the bank was not sizeable.
Saleem is confident that the bank is not expecting any major issues in recovery of loans and the bank’s net NPA position is ‘very comfortable’ - just 1% of its total advances. The bank has provided a sum of `1.6 million by way of temporary assistance to the flood-hit victims. The bank re-schedule the repayment process, he says, adding the recovery process may not face much hurdles.
Like in the ITU Bank, the computer systems of Kottakkal Cooperative Urban Bank are located securely at the head office and the floods had no impact on the data stored. Barring a few days when connectivity was a problem owing to the floods, all the branches became operational quickly. Saleem points out that all the 24 branches of the bank are fully computerized and connected the floods did not even affect the mobile banking operations, which were started very recently.
COMMON GOOD FUND
The bank has a unique way of trying to fight natural calamities and disasters like floods and droughts. As a matter of policy, it has created a ‘Common Good Fund’ out of its resources to deal with such contingencies and sets apart every year a small sum out of its profits. At present, this fund has corpus of around `6.5 million and the bank has provided `1.6 million out of this accumulation as immediate assistance to the grief-stricken and flood-hit victims, particularly of the weaker sections. Such initiatives, feels Saleem, help to mitigate the disruptions and sufferings of the poor clients in the future.
Dhanlaxmi Bank is a private bank, headquartered in Thrissur city. It has some 650 touchpoints - branches and ATMs covering almost all the states. In Kerala alone there are 145 branches and 180 ATMs. According to T. Latha, the recently appointed MD and CEO of the bank, only 7 to 10 of the branches and a few ATMs were ‘majorly affected’ by the floods. Consequent on the “immediate action and close monitoring, all the branches were up and running very quickly,” she says, adding normalcy returned very soon. In a way, the bank was, perhaps, the least affected in terms of disruption of its services to the customers owing to the floods.
Latha maintains that the socio-economic impact of floods on the state would definitely be affecting bank’s business. The most affected segments would be agriculture and the MSMEs, where the bank has a significant exposure. The bank has extended its support to the flood-affected customers like waiver of minimum balance charges, fees and commissions. The bank has also waived the exchange charges on remittance to the Chief Ministers’ Distress Relief Fund.
The bank already has a flexible onetime settlement scheme and Latha hopes this will support the flood-affected borrowers, thereby helping mitigate their sufferings. This scheme, she says, has been working well and proved to be effective in the recovery of loans.
Thrissur city was not severely affected by the floods and as such there was no impact on the bank’s data center, which is located in the city itself. Being a responsible nine-decade old financial institution, the bank has always been supporting every initiative of the government for providing relief to the calamity-stricken victims. This is part of the bank’s policy and Latha insists this will continue in the present case as well.
T.K. Dileep Kumar
Flood waters in front of an ITU Bank branch
Damaged records and furniture in a bank branch