Karur Vysya Bank (KVB), which celebrated its centenary in September 2016, took giant strides in profitability in 2015/16, while keeping non-performing assets, or NPAs, under control.
Riding on its age-old focus areas - small and medium enterprises (SMEs) and retail - it took the top slot among 13 small banks by showing one of the steepest increases in operating profit/total income (27 per cent rise), keeping NPAs around 1 per cent, and maintaining a high NPA coverage ratio of 56 per cent.
"The bank has been focusing mainly on SMEs and retail financing in its 100 years of existence. We recently added the agriculture sector to this mix to broad-base growth," says K. Venkataraman, Managing Director and Chief Executive Officer, KVB.
Fee income accounted for 9.07 per cent income. Only RBL Bank was ahead of KVB on this parameter with a figure of 10.82 per cent.
None of KVB's rankings on various parameters analysed by the BT-KPMG study were less than 10. That enabled it to stand in good stead in the overall performance.
The seed of the bank's success was sown in 2009 when it embarked upon a seven-year transformational plan ending in the bank's centenary year - 2016. This does not mean there were no tweaks on the way. "Although in the earlier years of the plan, as a growth strategy, the bank increased corporate advances, this resulted in higher levels of stressed assets. This approach has been completely changed," says Venkataraman.
"We introduced a growth model based on SME, retail and agricultural segments to broad-base growth and make liability and asset portfolios more granular," he says.
The bank categorised the business into four segments - corporate and institutional group, commercial banking group, agricultural banking group and personal banking group. The organisation structure was also redesigned with clear focus on business strategy wing, operations wing and other services, and inspection wing. "The segmentation gave the bank focus and helped it develop products/services for a homogeneous group of customers in each segment," says Venkataraman.
"We also developed strong risk management systems, revamped procedures, improved training and introduced a focused appraisal system to foster performance culture," he says.
As part of the transformational plan, huge investments were made in the technology platform and many digital/technology products and services were introduced. "Our efforts have been focused on building a strong balance sheet and position the bank for steady growth with strength and profits," says Venkataraman, adding that over the past seven to eight years, the bank has substantially rebalanced its loan book. "Our corporate book came down from 47 per cent to 33 per cent and retail book rose from 8 per cent to 15 per cent," he says.
As on March 31, 2016, the bank was fifth in balance sheet size (Rs 57,663.72 crore), behind Federal Bank, State Bank of Mysore, Jammu & Kashmir Bank and South Indian Bank, among small banks.
Venkataraman says slow economic growth over the past few years and the resulting fall in demand have been challenges for the entire banking industry. "On the one hand, this resulted in a fall in credit demand, which reflected in low credit growth, while on the other hand, the decline in sales of companies led to pressure on their cash flows and so they faced difficulties in servicing loans, causing stress and delinquencies."
In 2015/16, many consortium accounts in large banks faced problems on account of asset quality review by the regulator. Slippages in loan accounts at lead banks resulted in blocking of funds and stalled steps to help the stressed borrowers. This escalated into an industry-wide stress, says Venkataraman. KVB, though, escaped relatively unhurt. "Our bank has been prudent in driving growth under the circumstances. It has been using strong filters to identify and exclude weak accounts from getting on to the books," he says.
"KVB's model of working capital finance has always ensured lower leverage for the borrowing units. This helped many units tide over the situation even in the face of poor cash flows as the servicing liabilities were lower," he says.
"The next phase is aimed at positioning the bank as a specialised SME bank," says Venkataraman, adding that the bank's growth will mainly depend on SME and retail loans, and to a certain extent on smaller and middle level corporates.
KVB does not have any plan to enter universal banking areas such as mutual fund and insurance for now, says Venkataraman, adding that it prefers the organic growth model. ~