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Indian states banking barometer series #1: Tamil Nadu

We believe, along with pan-India banking trend analysis, regularly penning down bottoms-up analyses of state-specific trends would also be insightful. We are therefore launching ‘Indian states banking barometer series’, which would help investors and corporates keep a close tab on the sector as well as bank-specific trends (credit, deposit market share) and positioning in a particular state (credit segment offering opportunities, who is dominant, credit quality behaviour, etc). Indian financial landscape is diversified and heterogeneous across states with banks adopting differentiated strategies in varied markets.

This maiden note in the series deep-dives into the Tamil Nadu (TN) market, which commands 9% / 7% share in credit / deposits respectively. The state has a few distinct characteristics: i) is more credit-centric and further skewed towards agri and specific industry segments; regional banks/HDFCB are more prominent; ii) deposit profile is granular, but the state is not a active deposit mobilisation market (except home players); iii) regional banks dominate semi-urban markets; large banks focus on metros; FB/Bandhan are more active in urban markets.

* Tamil Nadu (TN) – Credit-centric market; skewed towards agri and specific industries: TN has been a relatively credit-centric market as reflected in: i) elevated credit to deposit (C/D) ratio at ~113% vs pan-India C/D ratio of 76%, ii) state credit to GDP ratio averages 56% (FY15-FY19) vs 53% at pan-India level. Credit is concentrated relatively more into the agri sector and specific industries (construction, textiles, food processing, vehicles). Credit-centric market is also demonstrated through high C/D ratio of >160% for Axis, IIB, FB, Ujjivan, Equitas, Bandhan, etc. Private banks are more aggressive in vehicle and credit card segments and are selectively tapping a few industry segments.

* Regional banks, HDFCB more prominent in credit market; Equitas ramping up: On further evaluation of TN credit market, regional banks (namely CUBK, KVB, FB) emerge more prominent. Amongst large private banks, HDFCB leads followed by Axis. Equitas is now consolidating its position in TN.

* Despite granular deposit profile, state is not a very active deposit market except for home players: TN’s deposit profile is more granular as reflected in 68% of deposits flowing from household sector and average ticket size being 15-20% lower than the panIndia average. It is not a very active deposit market for large private banks (their TN share is less than pan-India). However, KVB and CUBK enjoy higher deposit concentration in TN, being the home market, and are actively ramping up their deposit market share (their C/D ratio is <70%). Similarly, for SBI and Kotak, TN is a more balanced between credit and deposit (110-120% C/D ratio). Federal Bank has scaled up credit well, yet needs to catch up on the deposit front in the state.

* Regional banks dominate semi-urban markets; large private banks focus on metros; Federal/Bandhan more active in urban: In TN, top two cities (Chennai, Coimbatore) constitute >50% credit/deposit. However, their presence (branches) is relatively higher in semi-urban and urban than metros. Interestingly, rural and semiurban markets in TN are dominated by SBI, regional banks and SFBs. Metro markets are key focus areas for large private banks (CUBK and KVB are not far behind in branches). FB and Bandhan more active in urban markets.

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