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When the Reserve Bank of India (RBI) issued guidelines in August 1996 for setting up local area banks in the private sector (with the minimum paid-up capital set at Rs 5 crore and the area of operation restricted to a maximum of three geographically contiguous districts), Saravjit Singh Samra of Jalandhar - who was in the asset finance business - grabbed the opportunity to foray into a more organised system of credit mobilisation.
He conceptualised the Capital Local Area Bank, or CLAB, obtained the necessary approvals - including a licence from the RBI - and commenced operations in January 2000 from Nakodar in Jalandhar district, with the help of contributions from the core promoters and friends.
"Getting approvals from RBI was a tremendous task. The pocket we zeroed in on was an NRI (non-resident Indian) belt of Punjab that is presumed to be an affluent block of the state. Nevertheless, there were unbanked villages and suburbs there, and commercial banks (both public and private) did not open branches there due to the low volume of business. Being a small player, we found it viable to set up branches there," said Samra, managing director of the bank.
Things soon fell into shape. Since it was not mandatory for private banks at that time to open branches in rural areas, it was a virgin market. "We hired local persons for retail banking in all branches, and this helped potential local customers to easily connect with the new entity," said Samra. The bank now has a head count of 550 and the attrition rate is low, he added.
In the year ended March 31, 2013, CLAB had deposits of Rs 977.78 crore, advances of Rs 605.91 crore, investments of Rs 313.61 crore, gross revenues of Rs 119.39 crore, a net interest income of Rs 39.80 crore and a net profit of Rs 12.51 crore. Its total business grew by 18.39 per cent in 2012-13. "Our growth performance is quite satisfactory, as 80 per cent of our branch network is in the hinterland," said Samra.
The strong local connections that the bank has built with its customers have ensured that there have been no problems with loan recoveries, and this is corroborated by the fact that the net non-performing assets (NPAs) of the bank are nil.
Driven by success in its existing locations, Samra applied for new territories and secured approval from the RBI in January 2013 for expansion in two more districts - Ludhiana and Amritsar - in Punjab.
CLAB has a network of 29 branches (14 rural, 12 semi-urban and three urban) and is projected to have 40 branches in five districts of Punjab by March 2015. No-frills accounts constitute 25 per cent of the total savings bank accounts of the bank.
The RBI had, in a written communication in September 2012, praised CLAB's efforts in extending banking services through 'Suvidha Kendras' (brick and mortar banking correspondents) and sought to understand from the bank how the model functioned, in order to replicate it in other areas of the state.
"The recognition from industry associations and RBI has motivated us to go ahead with more vigour. But the endorsements from our 2.09 lakh customers is more rewarding," said Samra.
Punjab's farmers, who are in the grip of moneylenders in the unorganised sector and have been committing suicide owing to their inability to repay on time, are the main target customers of the bank. The credit exposure of more than 32 per cent in agriculture (against the RBI guideline of 18 per cent) underscores the promoters' inclination towards rural banking.
With the RBI having at various times stressed the importance of bringing about financial inclusion, there is room for small banks in the country, remarked Samra, who is beginning to think of looking beyond Punjab. "We may spread our operations outside Punjab, but only after consolidating our presence in the existing geographies," he said.
