Southern Harvest

What makes the southern metro tick? A combination of factors, ranging from a growing market to the very nature of the men who run south Indian mega-businesses. Madras, for instance, is a great market for financial services aiming to mop up savings. The average Tamilian loves to save. "The per capita contribution of a Tamilian to bank deposits is Rs 3,371.40 as against the national average of Rs 3,239.60. This is when the state's net per capita income at Rs 4,428 is lower than the national per capita income of Rs 5,015," says R. Thyagarajan, chairman, Shriram group. New financial instruments and activities, therefore, have many takers.

As a result, Tamil Nadu has a long tradition of innovative financial services. The country's first organised sector hire-purchase firm, Sundaram Finance, was born here. So also the first Indian leasing company, aptly named First Leasing Company. Madras is home to the first private sector mutual fund, Kothari Pioneer, as also the first consumer credit rating agency, set up by First Leasing's founder Farouk Irani.

Citibank moved its global consumer bank here in 1986 and its cards division in 1988. The bank's operations group, also headquartered at Madras, caters to all nonresident and domestic banking operations, processing over one million transactions a month. "Our Madras hub supports a customer base of almost 80,000, spread all over India and abroad," says Sanjeeb Chaudhuri, vice-president, Citibank.

In 1994, ANZ Grindlays shifted most of its South Asian operations to Madras. The bank's technology division, card services division, property services and Internal Training Centre are now housed at Grindlays Garden in Madras. Says Jayanta K. Basu, the chief executive officer's representative in south India: "Our clientele base has increased from 20,000 to more than one lakh in the past six years." Tocater to the new clients, ANZ has recently opened a Centre for Excellence for Small-Scale Industries in Coimbatore.

Bank customers do not come only in the form of the savings-oriented Tamilian. "Our all-India study reveals that Tamil Nadu has the highest concentration of small-scale industries that have not only braved the forces of liberalisation but made an impact on the international scene," says Basu. Unlike Maharashtra or Karnataka, where the growth centres are restricted to the Bombay-Pune belt and Bangalore, respectively, Tamil Nadu has six growth centres spread across the state—Madras, Coimbatore, Tirupur, Madurai, Tuticorin and Trichi.

The icing on the cake is Madras' affordable real estate rates which guarantee large office spaces to the corporations, and comfortable accommodation for employees. Says Chaudhuri: "It was almost impossible to get large contiguous space of over 1,00,000 sq ft in the business districts of Bombay or Delhi." A report of the Hong Kong-based Colliers Jardine Property rates the rentals in Bombay at $123.82 per sq ft as the second most expensive place in the world. Delhi rentals at $73.2 make it the tenth most expensive city in the world. Of the other two metros, Bangalore is fast losing its lustre ( see Outlook, November 22 1995 ) and Calcutta has evinced hardly any interest in wooing financial services firms. Given the scenario, Madras seems to have just the right credentials to attract finan-cial institutions.

Tamil Nadu's inherent advantage is its skilled human capital. "Madras provides both the place and the people to run a financial industry," says a spokesperson for the Standard Chartered Bank. Since the cost of living is lower than in Bombay and Delhi, skilled manpower is available at a relatively low price. Says Thyagarajan: "The cash outgo on salaries is at least 60 per cent lower than in Bombay and 50 per cent than in Delhi for expertise of comparable quality." Computer literacy is high. Says V. Narayan, former chairman of Pond's and project coordinator at the Academy for Management Excellence: "While scarce resources can be procured and developed, an inherent advantage in human capital cannot be easily replicated."

Infrastructure-wise too, Madras scores. The Centre for Monitoring Indian Economy's index of relative development for Tamil Nadu is 138 against an all-India average of 100. The indicators: good roads, rail route of 4,010 km, two international ports, an international airport, five domestic air terminals, 4,966 bank branches, 100 per cent electrification(achieved as early as 1972) and a high level of urbanisation at 36 per cent.

But there are some not-so-obvious reasons too for Madras' rise as an alternative financial capital. The last few years have seen Madras-based entrepreneurs moving through the psychological southern barrier and going global, says R. Seshasayee, joint managing director, Ashok Leyland. More companies are opting for Global Depository Receipt (GDR) and private placement routes. SPIC, TI Cycles, India Cements and EID Parry have successfully raised money through Euro-issues. Chescor Holdings Ltd, a UK-based FII, has opened its office in Madras for controlling its South and South-East Asian operations. Says a spokesman of Chescor: "The traditional ties between the Tamilians of India and those in Singapore and Malaysia have been a decisive factor in choosing Madras."

"Southern scrips are not subjected to the same level of speculative pressure as Bombay scrips. The lack of aggressive speculations over most of the good, reasonable scrips attracts merchant bankers to Madras," says Na Vijayashankar, managingdirector, Prakruti Financial Services and advisor to Finhans, the financial services division of R.K. Swamy/BBDO. It's hardly surprising therefore that most successful merchant bankers are making a beeline for Madras. SBI Caps, Ind Bank and ANZ Grindlays' merchant banking divisions have registered higher growth rates in the state when compared to the rest of the country. "Madras has managed to evolve a right mix of fund-based and capital market-driven activities. The

fluctuating fortunes of the capital market are, therefore, unlikely to wipe out a Madras-based financial company," says Vijayshankar. In 1991-92 Bangalore attracted a lot of people from the western states but the Fairgrowth fiasco almost nailed the city's ambitions. Madras, in comparison, seems to be a more logical choice.

And after all, among all the Indian states, Tamil Nadu is the true fountainhead of all services—banking and financial. Besides having hundreds of small financial firms and chit funds, Tamil Nadu has more private sector banks than any other state. Non-nationalised organisations like Karur Vysya Bank, Lakshmi Vilas Bank, City Union Bank, Tamil Nadu Mercantile Bank, Bharat Overseas Bank and Bank of Madura have been showing impressive growth and profit. Says Vijayashankar: "The very fact that most corporate houses from Bombay are eyeing Madras-based banks is an indicator of successful banking activity."

 Kotak Mahindra has taken over Bank of Madura and the Ruias are deeply embroiled in a takeover bid for the Tamil Nadu Mercantile Bank. New private sector banks like ICICI Bank, HDFC Bank, UTI Bank and Global Trust Bank have opened their branches in Madras. Explaining the rationale behind opening the bank's first branch in Madras ICICI Chairman N. Vaghul said: "Madras believes in fundamentals. Financial activity here has a strong ethical component. Business is booming. Hence, Madras is a natural choice for start-up operations." Never were truer words spoken.