Financials: Banking on Spirituality

30 Jan 2024 , 11:11 AM

India’s religious tourism is burgeoning, with the government’s thrust to build an integrated ecosystem around the pilgrimage destinations under PRASHAD scheme and the rise of spiritual/ wellness travel. Indian temples have annual footfalls of 15- 45mn each, and are rising rapidly (10x in Varanasi in 3 years). Temple districts are growing faster than the overall country’s growth rate; aided by religious tourism (320 mn tourists expended US$28bn in UP). Analysts of IIFL Capital Services see business opportunities for banks on the lending as well as deposit mobilisation sides. Their analysis of 17 temple districts shows that loans and deposits grew at 12% /10% 5Y Cagr, and have a low LDR of 60% (vs 76% for the system). With temple trusts alone accounting for 10-45% of the total district deposits, banks are vying to capture this business. With an existing 5-17% branch market share in temple districts, analysts of IIFL Capital Services expect PSU banks and HDFC among the Private banks to be the key beneficiaries. 

Rise of spiritual tourism: 

While the number of domestic (2,300mn in 2019) and foreign tourists (31mn) visiting India is steadily rising, the share of Tourism in India’s GDP at 6.8% is still lower vs 5-20% for other countries. With 60% of India’s Domestic Tourism in the religious and spiritual Tourism category (link), central government in partnership with the States/UTs, is building an integrated tourism ecosystem around the pilgrimage destinations under Pilgrimage Rejuvenation and Spiritual Heritage Augmentation Drive (PRASHAD) scheme. Several popular temples are attracting annual footfalls of 15-45mn. Development of the Kashi Vishwanath Temple corridor in Varanasi has resulted in a number of tourists jumping ~10x within a span of just three years from 6.8mn in 2019 to 72mn in 2022. Post the recent consecration of Ram Temple in Ayodhya, it is expected to attract 75-100mn annual footfalls. Select South Indian states, Uttar Pradesh, Maharashtra and Gujarat are attracting the highest number of tourists. 

Significant potential to boost the economy: 

While the seven Temple districts are growing in tandem with India’s GDP, select districts ala Madurai, Ayodhya and Varanasi are growing at a faster clip in the recent years. With a thrust to religious tourism, Uttar Pradesh is benefitting the most – 320mn tourists expended Rs2.3trn (US$28bn) in 2022. Government has planned ~US10bn investment in Ayodhya across railway, roadways, new airport, etc. analysts of IIFL Capital Services expect rapid infrastructure development and private sector investments in these districts to boost business growth, create job opportunities and generate additional tax revenue. 

Lending and deposit mobilisation opportunities for banks: 

As spiritual tourism boosts the Temple districts’ economies, analysts of IIFL Capital Services expect incremental business opportunities for banks on the lending side (capex and WC loan demand from businesses, and a pickup in individual consumption demand as growth benefits trickle down) as well as deposit mobilisation side. Analysts of IIFL Capital Services have analysed 17 major Temple districts in India that constitute 2-2.5% of system loans and deposits. Deposits have grown at 10% 5Y Cagr in these temple districts —in line with the system, but loan growth is ~200 bps higher at 12% Cagr. However, loan-to-deposit ratio of 59% is materially lower than 76% for the system. Temple Trusts alone account for 10-45% of the total deposits in those respective districts, and are thus, a major source of deposit mobilisation for the banks. 

PSU banks and HDFC to be the key beneficiaries: 

Temple Trusts have parked majority of their deposits with Public sector banks – BOB, SBI and PNB in Ayodhya (Rs30 bn as of Mar-23), and one-third of Tirupati Temple’s Rs160bn deposits with SBI. With the pick-up in religious tourism and consequent boost to the local economy, many banks are opening/adding new branches (e.g. Karnataka, J&K and HDFC in Ayodhya recently) in the temple towns. However, with an existing 5-17% branch market share in the temple districts, analysts of IIFL Capital Services expect PSU banks ala SBI, Canara, Union, PNB and BOB; as also HDFC among Private banks, to be the key beneficiaries.