Andhra Grameena: Regional Satrap

A small regional rural bank (RRB), located around 140 km from Hyderabad, at Hanamkonda in Telangana, is throwing up performance ratios that even the biggest of its peers cannot boast of. Andhra Pradesh Grameena Vikas Bank (APGVB), catering to the banking needs in 21 districts of Telangana and three districts of Andhra Pradesh, generated a 2.85% return on assets (RoA) and a 25.50% capital risk-weighted assets ratio (CRAR), better than most listed banks, in FY23. To put the numbers in context, the winner among mid-sized banks in the Fortune India-Grant Thornton Bharat survey, Kotak Mahindra Bank, posted an RoA of 2.47% and a CRAR of 21.80% for FY23.

APGVB also posted a net interest margin (NIM) of 5.23%, slightly below that of Kotak Mahindra Bank's 5.33% for FY23. The bank has topped the charts in this key parameter in FY22 among all RRBs, according to the National Bank for Agriculture and Rural Development (Nabard) annual data.

However, the icing on the cake for this small-ticket lender has come from its net profit of ₹1,047 crore in FY23, up 28.6% YoY, almost double that of second-ranked Andhra Pragathi Grameena Bank (₹595 crore) and Baroda Rajasthan Kshetriya Gramin Bank (₹560 crore) at the third, among RRBs.

Typically, RRBs are not allowed to raise funds from the market, having been promoted by the Centre, state government and a sponsored bank in the ratio of 50%, 15% and 35%, respectively. They can only raise retail and bulk deposits, and can take refinance from Nabard. The SBI-sponsored APGVB has crossed ₹50,000 crore in total business (advances plus deposits) per annum, ₹5,000 crore in net worth, and ₹10,000 crore in corporate loans book at the end of March 2023. It is also the leader in the home loan segment among RRBs.

Cost Of Funds

The bank's cost of deposits was 4.79%, while the average yield on loans and investments was around 10% in FY23, highlighting its ability to deploy funds at higher interest rates compared to peers. "Our cost of funds is reasonable because our CASA is at 38%. We want to raise this by at least 200 basis points (or 2%) in FY24. We don't opt for long-term refinance facility of Nabard since it is slightly costly. We are dependent more on bulk deposits," says K. Prathapa Reddy, who assumed charge as the chairman of APGVB in early June 2023.

"We have around ₹15,000 crore of investments. We also sell inter-bank priority certificates at profit to other banks, which fall short of priority sector lending requirements," adds Reddy.

To reduce dependence on high-cost bulk deposits, the bank plans to focus on retail deposits. It is targeting fixed deposits of ₹1 lakh per day at each of its branches. "It has two advantages: Availability of funds within the bank, and retention of funds for a longer tenure," says Reddy. The bank has 771 branches and over 2,700 'Bank Mitras' (business correspondents).

Realigning Portfolio

Being an RRB, APGVB is mostly dependent on the agriculture sector for fulfilling PSL commitment, accounting for 85% of its total credit. Its major exposure has been to kisan credit card holders, self-help groups and gold loans. The bank wants to realign itself by giving a push to investment or term loans targeted at building rural infrastructure. "We have declared FY24 as the year of investment credit, focusing on high-value credit. These term loans are part of an initiative by the government, offering lots of subsidies to customers, including interest rate subvention, and certain guarantees under Credit Guarantee Fund for Micro Units," says Reddy.

Digitisation Drive

"Many of the processes have been automated and digitisation of deposit and lending operations is in progress. About 90% of our transactions happen through alternative delivery channels. We are also planning to utilise AML machine learning for generating leads for loans," claims Reddy. The bank has introduced video KYC-based account openings in March 2021, through which it has opened 2.5 lakh accounts.

APGVB has set a target of ₹1 lakh crore in business per annum within 5 years from the current ₹52,000 crore. The bank, a product of merger of five RRBs in 2006, is also looking to take over three other RRBs in Andhra Pradesh. "However, that may take some time," says Reddy.