In TMB’s Tuticorin headquarters sits an equally worried-looking man. Managing Director Nagamal Reddy wants to take a slew of decisions to respond to economic challenges and nudge the business forward. TMB needs to open new branches, finalise a national expansion strategy, quickly hire at least 600 people, issue bonus shares to capitalise its huge reserves, and draw up plans for an initial public offering. He can’t do any of this, because he doesn’t have a board to take these plans to. Well, two nominees of Reserve Bank of India keep him company, but a full-fledged board that has the power to take these decisions has not been allowed to take charge.
At stake is not only TMB’s ownership but the larger question about community banks in India. These banks, which combine traditional forms of relationship-based financing with modern banking, came as a boon to communities discriminated against by untouchability. That was a long time ago; today, community-based banking is becoming impractical. With access to capital and their customer base both limited to niche groups, many have been devoured by larger banks. Some have got nationalised, others sidelined; a few, like TMB, have pressed on, but have found their communities unable to feed their hunger for resources and professional management.
...Community banks in India have been in a state of flux in recent years, having to choose between growth capital and social capital. Catholic Syrian Bank has been serving the eponymous Christian denomination for decades. The Archdiocese of Thrissur still has significant influence over the bank. An attempt to merge it with Federal Bank has sparked off a controversy. City Union Bank was started by Brahmins in Kumbakonam. The community still holds a big stake, but the bank has opened up, recently welcoming Larsen & Toubro as a shareholder. Development Credit Bank was started as a cooperative bank to cater to Bohra Muslims. It became a commercial bank in 1995. The Aga Khan Foundation continues to be the single largest shareholder. The management is professional. Bank of Madura was started by a Chettiyar, and remained closely associated with that community. It got merged into ICICI Bank after community members sold their stake. Vysya Bank (Vysyas) and Dhanalakshmi Bank (Brahmins) are other examples of community banks that went mainstream.
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at email@example.com