Karur Vysya Bank will not exit corporate business, says B Ramesh Babu

Tamil Nadu-based Karur Vysya Bank (KVB) is undergoing a strategic makeover by focusing more on the retail, agriculture and MSME segment. Managing director (MD) and chief executive officer (CEO) B Ramesh Babu talks to Shine Jacob in Chennai about its portfolio roadmap, expansion plan and second quarter performance. Edited excerpts:

 

KVB reported a 25.13 per cent rise in net profit for July-September at Rs 473.6 crore. How do you see Q2 performance?

The quarter gone by was a wonderful one where all boxes under business growth, asset quality, and profitability have been ticked. The bank’s Q2 performance indicators align with our guidance, demonstrating consistent and steady growth. It’s encouraging to see inclusive growth in our retail, agriculture and MSME verticals, continuing the strong start we made in the first quarter. 

 

Share of the corporate segment in your portfolio came down from 40 per cent to 16 per cent in the last four years. What was the reason for this?

Our cost of deposits is one of the most reasonable in the industry, and our yield on advances is in the 10.08 percent range. With that, we have been able to maintain a healthy net interest margin (NIM) of over 4.1 per cent for the last few quarters. To maintain NIM, it's essential to rebalance the portfolio. We evaluated each vertical to see how much they contributed. We found that yields were the lowest in the corporate segment because borrowers with Rs 100-200 crore exposure expected the lowest rates from us. It was almost like becoming a deposit-sourcing arm for those lenders. Therefore, we decided to deploy the same resources in the retail, agriculture and MSME verticals. In these segments, yields are better, and they are the bank's core business, with the majority of loans backed by collateral. In the corporate segment, if something goes wrong, recovering assets is more challenging due to factors like multiple lenders and legal processes. So, we rebalanced our portfolio, and the corporate share has now reduced to 16 per cent.

 

Where would you like the corporate share to settle?

We’re not going to exit this (corporate) business. If current account saving account (CASA) deposits increase, there will be a better mix of CASA and time deposits. With lower deposit costs, it would make sense to stabilise the corporate segment at around 20 per cent when things normalise. This was a tactical decision to allocate funds to the retail, agriculture and MSME verticals.

 

The Reserve Bank of India (RBI) barred four non-banking financial companies (NBFCs) from sanctioning and disbursing loans due to exorbitant interest rates charged to borrowers. Is this a concern for you, as you are also involved in the co-lending space through partnerships with NBFCs?

We have co-lending partnerships with two entities, one of which is Chola. However, we have slowed down in this area over the last year. The reason is that the interest rates are around 8-9 per cent. The portfolio, which used to be around Rs 950 crore, has come down to Rs 600 crore. And, we have paused further disbursements for the time being. If our CASA position improves, we can restart this. Our NBFC portfolio, which was around 8.5 per cent, has come down to just over 3 per cent. We reduced it for two reasons: first, the higher risk weight, and second, when lower-tier industries struggle, NBFCs are the first to feel the impact.

 

You are predominantly a South-based bank with the majority of branches in Tamil Nadu, Andhra Pradesh, Telangana, and Karnataka. What are your expansion plans beyond the region?

Last year, we opened around 35 branches, and this year we have planned for about 100 branches. Of these, 20 will be normal organic branches, and 80 will be lite branches, linked to a hub and spoke arrangement. This is a model we are experimenting with. If we don't invest in these initiatives today, there will be a vacuum in the future. We will assess the incremental value we are getting out of every rupee spent in other geographies. We may look at revamping our branches contributing to the top 25 per cent of the business of the bank to make them more customer-friendly.

KVB seems to be giving a lot of emphasis on special mention accounts (SMAs). What is your strategy?

We started focusing a lot on our recovery. Our focus is to prevent accounts from becoming non-performing assets (NPAs). We have tightened onboarding norms. Our slippage ratio, which used to be 3.5-4 per cent at one point of time, is now below 1 per cent. Last year, our total slippages for the whole year were around Rs 380 crore. Rather than looking at an NPA, we started engaging with borrowers at the SMA level.

For the whole portfolio, SMA I and II together is below 0.5 per cent. The figure used to be 3.5-4 per cent. Here, chances of recovery are higher. Looking into NPA numbers, at a point of time 8.5-9 per cent was our gross NPA. Now, we have brought it down to 1.1 per cent. On a book of around Rs 80,000 crore, net NPA is Rs 219 crore. This comes to 0.28 per cent.


How do you evaluate the success of your Feet on Street program?

In the last six to eight months, we have conducted a mass communication programme for the first time in the bank’s history. Through this, we have started engaging more effectively with customers.

We launched the Feet on Street initiative with a dedicated sales force for liabilities. Since we cannot outsource liability activities to third parties, we brought 1,500 people onto our rolls. This initiative spans various verticals, including corporate salary packages, trade forex, institutional, and NRI segments.

They highlighted that many of our products were no longer relevant in the market. Unless we benchmark them, we cannot market them effectively. Ideally, we would hire an external agency for this, but in this case, our team benchmarked these products themselves and developed 24 new products. Without this initiative, it might have taken us five more years to achieve the same.

As a result of this targeted marketing, new acquisitions in savings and current accounts have started to increase.