Investors rush to sell Kerala banks’ stocks

Kerala-based lenders have seen a sharp erosion in the value of their shares in the past fortnight after Saudi Arabia initiated a clampdown on illegal immigrant workers and brought in regulations that stipulated reservation of 10% of jobs for citizens. The new rule, known as Nitaqat, is likely to impact over 300,000 low- and semi-skilled Indian workers, most of whom are from Kerala.

The deadline to implement the law, originally set for late March, was extended by three months but panic has gripped Indian workers in that country. The Kerala government had moved the centre to address the matter.

Any job losses can have ramifications on the flow of non-resident Indian (NRI) deposits and remittance funds to the southern state, routed primarily through Kerala-based lenders such as State Bank of Travancore (SBT), Federal Bank Ltd, South Indian Bank Ltd (SIB) and Dhanlaxmi Bank Ltd.

Stocks of these lenders have been declining since late March when the new labour norms became known.

Most of these banks generate about 10% of their fee income from the remittance business.

SBT managed Rs.31,000 crore of remittances from the Middle East in the fiscal year ended 31 March. “We are yet to ascertain the impact of the new regulations. According to official estimates only 500-600 people have returned from Gulf but the actual number is not known,” said Bhanu Murthy, deputy general manager, NRI services, at SBT.

Analysts and bankers ruled out any major impact on remittance and NRI deposit mobilization by these banks, saying the clampdown will primarily impact the unskilled, illegal immigrants but not regular employees. They attributed the fall in bank shares to a panic reaction by investors.

“There may not be too much of an impact on the remittance-related fee income and NRI deposits as banks typically fulfil the know-your-customer procedures while accepting such depositors,” said Abhishek Kothari, research analyst at Mumbai-based brokerage Violet Arch Securities. According to him, banks don’t accept deposits from the kind of illegal immigrants who may now be forced to come back.

Abhraham Chacko, executive director, Federal Bank, said the fall in stock prices was just a “knee jerk” reaction to the change in the Saudi law.

“It is true that Kerala would be impacted most because they have the largest share of migrant workers but it is also a fact that these workers do not have accounts in Federal Bank alone. Also, the 10% job quota that Saudi is enforcing will impact labour from other countries like Pakistan and Bangladesh, besides India,” Chacko said.

Chacko said about 7% of total remittances to India from the world are through Federal Bank. India was the top receiver of global remittances in 2012, getting $70 billion, ahead of China, which got $66 billion, according to the World Bank.

“About 25% of our deposits come from NRIs but more than 80% of them don’t stay with us —people spend the money. I think even if there are job losses in Saudi, it won’t be big numbers,” Chacko said.

Federal Bank had total deposits of Rs.51,607 crore as of December 2012.

Dhanlaxmi Bank too ruled out any significant impact. “Major part of the remittances are maintenance remittances (money sent for household expenditure). Such remittances contribute a relatively small portion of our deposits,” said P.G. Jayakumar, managing director and chief executive officer of Dhanlaxmi Bank.

In this point I would like to add South Indian Bank at 20-22 levels for target of 30 in next one year.I strongly believe SIB will bounce back from this levels of 23