Karur Vysya Bank



Karur Vysya Bank

Smart way to banking

 

KVB is truly a specialized small-business-cum-retail brand of best standard in the Indian banking industry. Its century old tradition of serving small entrepreneurs has made itself to be the first choice for small business in locations it is present, especially in industrially flourishing small towns and business clusters. In the process, over the years it has acquired a thorough knowledge of small business banking. At the same time, it has built a significant presence in India’s large metros too, amidst tough competition. The bank, today, has an immaculate track record of serving its customers in most suitable way they desire while strictly adhering to the culture of prudential banking and regulatory framework. An all-weather performer, KVB cheers not only its customers but also investors and banking sector analysts with its discrete lending approach and strong bottom line.Now the foundation is stronger, which ensures brighter days ahead, showing more reasons for everyone to cheer about.

 

Already turned a centurion, Karur Vysya Bank (KVB) is one of the oldest private banks in the country with fast expanding customer base, robust technology architecture and a comprehensive set of banking products at its disposal for meeting the needs of all classes of customers. KVB is a classic example of class and mass banking success as it has built a convenient space for every customer. The bank has a rich tradition of client care and being prudent in business dealing.

 

By virtue of its long years of existence, it knows three generation of customers and over 100 years evolution of the Indian banking market more closely than most Indian banks do. Within the bank refurbishment of systems and processes and innovation in services with consistent value addition are routine exercises. “Our excellent human resources, integrity of employees and admirable board that endorses the vision set by its top management for the bank make KVB a different entity,” says Mr K Venkataraman, Chairman and Chief Executive Officer of the bank.  

 

Much has changed in India’s banking industry over the years in terms of operation, regulation, delivery system, product development processes, service models etc. On the other side, intense competition has made everyone open their eyes more broadly. In a highly competitive market only the fittest survives.  KVB, as its own history spoke, could successfully endure the changes, of which some are radical, and build an expanding base of loyal customers across the country, moving far from its traditional geographies. Many of its customers grew up in their business with its immaculate support, helping it bag more business opportunities, besides a respectable name among business clients and investors. Traditional customers usually may not like to move out so easily, but the new generation customers may, if they don’t find sophistication in service and delivery system. The bank knew this fact and kept itself ready for harnessing its strengths in product packaging, service and technology application to retain its long-staying customers and acquire new generation loyalists.

Today, the old and new generation customers equally find in the bank a new-fangled institution that is friendly, easily approachable and reliable. “The bank takes special care of its customers and ensures that they are always happy with it, while being extremely prudent in all its approach. For business customers it provides not only conventional banking services but also realistic guidance so that they don’t make any miscalculation in their planning and take business risk through excess credit exposure. “We want them to understand the adverse impact of fund misappropriation, reckless attitude in dealing with borrowed fund, credit misuse, diversion of credit into unspecified area and over-dependence on bank loans,” Mr Venkataraman points out. “In that process,the bank’s customers stay safe; their business is safeguarded. You may call it prudential, rather than calling it a conservative approach, he adds; “There are occasions the bank has gone extra mile also to satisfy loyal customers, who include individuals and business customers. But that hasn’t embarrassed the bank. Since every business is vulnerable to external shocks, which are beyond their control, even the best of prudence may result in some delinquencies under some economic atmosphere. “Banks know it. They are prepared for it; they have security in hand to turnaround and it is only a matter of time to turn the non-performing assets into performing assets,” he opines.

While that is one of the biggest challenges commercial banks face these days, shifting business focus away from large corporate business poses another challenge in building a position in other markets. KVB has been trying to address both these challenges simultaneously, which are perhaps easier for it than most banks, owing to its traditional focus on small business sector, core strength in this area and the legacy of discreet lending approach. It has also built a strong base for retail business in the recent years as a strategic focus on diversification into potential segment, where risk is lower. These two verticals give the bank a huge space for growth.

These two verticals are naturally small ticket businesses, where the bank management foresees a steady growth in loan, but not a rapid volume expansion in its book. Its focus on rebalancing the business mix through bringing in higher level of retail business, on both liability and asset sides, brought good results. The efforts would continue, says Mr Venkataraman. As the personal banking business still continues to be one of the thrust areas for growth, there are better possibilities of the bank achieving higher than the anticipated results in terms of net interest margin (NIM) and asset quality.

Across the industry, quality of assets has been deteriorating in the last three years mainly because of large corporate loan defaults. While every bank is vulnerable to this general trend, some could withstand the storm to some extent owing to their cautious approach or rather because of their control  over a tendency to expand their balance sheet rapidly. Banking sector analysts find KVB as one of the best examples of defensive strategy in terms of credit expansion at the very time the market is passing through its worst times. When the bank reported combined business growth of around six per cent for the financial year 2016-17 at Rs 95,000 crore, analysts were not upset, though many of them wanted to know, having its firm grip on loan management, why didn’t the bank move aggressively to expand its business size.     

“We don’t take risk and dilute our prudence,” he says. The bank works as a team, combining deliberations of officers before taking a final call on any credit proposal. That ensures a foolproof assessment of credit proposal, he avers. Excellent co-ordination between Credit Monitoring Group and the Stressed Assets Management Department at its Central Office and the recovery teams at Divisional Offices considerably ease out task of bank in terms of loan asset management. The combined strategies of preventive actions, recovery drive, upgradation, resolution and settlement and disposing of bad asset to Asset Reconstruction Companies (ARCs) would help the bank clean its books of bad assets, more easily than others, analysts are thoroughly convinced about this. At the end of the financial year 2016-17, the bank’s net NPA stood 2.53 per cent, which is much lower than the industry average. “We are taking all precautions to stop further slippages and vigorously focusing on recovery, so that the provisions are ploughed back. We anticipate a substantial cash recovery in the current financial year,” says Mr Venkataraman.

On the other side, growth strategy is intact, which is possible more easily through expansion of presence into new geographies. In the recent years, it has moved steadily into many carefully chosen locations. At the end of the financial year 2016-17, the bank has a network of 711 branches and 1747 ATMs to serve over six million customers. The successful attempt to find footprint in other potential small towns in many parts of the country helped it stay invulnerable to competition and driven its growth, as precisely calculated by the management.

The vision of the management could drive the bank forward in an unprecedented speed, especially in the last half a decade. Now it is inching closer to the trillion-rupee mark in terms of overall business with strong profitability, comfortable capital adequacy, asset quality that is one of the best in the industry, consistently rising employee productivity and shareholder value creation. Its financial performance speaks for it.

In 2016-17 the bank reported net profit of 606 crore as against Rs 568 crore in the previous year, despite substantially higher loan provisioning of Rs 687 crore as against the previous year’s Rs 392 crore. In fact, the growth in bottom line continued through the financial year 2016-17, when most banks reported huge net losses at the cost of menacing NPA. The aggregate deposits grew to 53,600 crore, a growth of seven per cent from the previous year’s level of Rs 50,079 crore. Advances grew 4.96 per cent to Rs 41,435 crore, despite substantially reduced focus on large corporate loans.

It seemed rather than embarking on rapid expansion of book size, the bank management wanted to strengthen its existing position, make the operation more efficient and build a robust business model that delivers stronger bottom line on sustainable basis.Focus on expanding CASA component was one of the strategies. In the year CASA component in the overall liabilities spurted to 27.73 per cent from the previous year’s 23.31 per cent, reassuring a consistent growth in this over the years. In the year 2016-17, the CASA growth was 27.53 per cent on year-on-year basis. In fact, the growth of CASA deposits was significantly higher than the overall deposit growth. This rising component of CASA led to a fall in cost of deposits from 7.06 per cent to 6.15 per cent. The bank is actively looking at shedding the size of high cost deposits as it is building more branches in non-traditional geographies. This focus has been giving it a good result as reflected in the cost of funds, which fell to 6.03 per cent from 6.88 per cent in Q4 in the year 2016-17.

In the last five years the bank has been witnessing a consistent growth, even when the industry has been passing through a dull phase in the last three years. In the financial year ended March 2012, the bank’s total business was Rs 54,317crore, which is now close to Rs 1 trillion. In any yardstick KVB is considered one of the best performers in the industry. Its clout is getting expanded as it moves into new locations and acquires new client base. In fact, KVB is an excellent case study of how traditional clout of a bank cannot be broken and how such banks understand the needs of its traditional customers to stay at the vanguard of their needs at all times. The bank showed its resilience to the changes of the market and regulatory equations, while private banking has been showing a paradigm shift to new generation.

In the initial years, expansion of its base was slow. For the first 11 years after its establishment in 1916, it had operated only with two branches, because its founders Shri M A VenkataramaChettiar and Shri Athi Krishna Chettiar, wanted the bank to serve the local businesses, farmers and individuals. By the year 1977 – 61 years later, it had opened 100 branches. It took two decades to add another 100 branches. But the things have changed significantly in the last two decades, adding more than 500 branches, with last five years being the period of more rapid growth.

Moved a bit slow until the last decade beyond its traditional base, the bank recovered its lost pace in making it a pan India bank. First it moved into the neighbouring Andhra Pradesh, where it found flourishing opportunities in small business and agriculture sectors. Moving up to other neighbouring States such as Karnataka and Kerala, the bank could build stronger presence in the southern hemisphere of the country. Further to western India it has built strong presence in Maharashtra, with strong business coming from the industrially thriving regions of Mumbai, Pune and other business clusters. In Gujarat also the bank has built a substantial presence. More branches will come in fast growing States, where there are opportunities for the bank, says Mr Venkataraman. It sees plenty of opportunities in these two states in the sectors like agriculture, trading and micro and small enterprise and personal banking sectors.

More than half of its branches are located in semi urban and rural markets. That can be construed as its strategic positioning for better and sustainable future growth in business, an additional advantage to its already strong position in places where economy has been thriving over the last two decades. Semi-urban and rural India is growing very fast with so many government sops and focus on encouraging self-employment and entrepreneurship building process. Moreover, it is in semi-urban centres small businesses are flourishing, says Mr Venkataraman. Incidentally, KVB has set its focus on economically thriving geographies. While more than half its branches are located in its home State and quarter is located in the neighbouring coastal Andhra Pradesh. In fact, in the southern hemisphere, the bank has already built a respectable place for it.

Today, it is not just the migrants the bank is targeting but the locals where it is opening branches. “We get encouraging local response as the staff of the bank always show friendly approach. We have the track record of meeting the requirements of our local customers wherever we are. That is another major strength of KVB,” he adds. Another major strength of the bank lies in its cutting edge technology. That is driving note its growth, but also customer confidence and operational efficiency, he points out.

As the bank continues to deal with third generation of its customers without giving them any reason for leaving its services and continuing to acquire new customer base, it offers new product solutions on cutting edge technology platforms – with incredible apps and wonderful comforts that can match any of the best in the industry. Its new app, which a customer can download easily, works as a virtual bank branch that is self-operable on phone screen. This is a wonderful product, he says.  

Still there are many customers, who feel comfortable with branch banking. Hence at the branch level also there are series of initiatives. As a part of its aim of reducing human intervention in providing customer service as much as possible, among many other steps, its branches have installed automatic passbook kiosks for instant passbook printing. While introducing new systems the bank also pays attention to upgrading the existing systems with technology support.

In the centenary year, it rolled out 18 products, a good number of them for MSME sector, indicating its business priority. The products consisted of three card products, such as KVB Centenary Prepaid Card - a reloadable prepaid card, Aadhar Enabled Rupay Card and KVB RupayKisan Credit Card. The new products also include a new KVB Centenary Cash Certificate with tenure of 50 or 100 months with higher yield, in addition to KVB Moneymala Plus, a flexible Recurring Deposit Scheme and KVB Gourav, a savings bank product for senior citizens. For corporate clients it has launched two products - Cash Management Solution and Supply Chain Finance to manage their funds and receivables more effectively.

In fact, the bank continues to actively leverage its proven IT initiatives to offer a gamut of products and services, embedded with the sophisticated technology and security features in line with emerging demands of customers and target groups. The bank keeps adding to the comfort of customers through harnessing its strength and making better use of the IT flexibility. The alteration of cash deposit machines as cash deposit-cum-cash withdrawal machines is the best example. The bank’s strategy of migrating ATM machines into recyclers – as the machines were made to dispense cash also. Through this attempt, the bank could cut down the task of periodic loading of cash in dispensing machines for customers’ withdrawal and save manpower and time, besides adding to the number of cash dispensing facilities.

The bank revisits its technology application consistently to offer upgraded options with path-breaking new features on many of its existing products and also new products. While a product is designed what the bank looks at is not only convenience but also savings for customers. The launch of chip based multi-currency card with feature of multiple wallets is a classic example. This product helps customers save cross currency conversion charges and also superior comforts.In fact, the bank keeps pace with technology changes taking place in the industry across the globe and finds newer ways to address various requirements. In March this year, it rolled out three technology services such as FASTags, Unified Payment Interface (UPI) called KVB UPI and Bharat Bill Payment System for enhancing customers’ comforts. 

FASTags is a highly innovative product, which the bank launched in association with  Indian Highways Management Company, a subsidiary of National Highway Authority of India, wherein pre loaded tags affixed to vehicles help them go ahead without waiting on queues at toll plazas and making cash payment. FASTags, which are valid across the country, can be pre-loaded with amounts and the toll amount will automatically be debited by the toll plazas through sensors. This makes toll management easier for companies assigned to the task, besides passengers and transport operators, though it is a challenging business model, he points out.

KVB UPI is a mobile app that helps customers to transfer funds inter-bank, any time through their smartphones. The major advantage of this service is that a single mobile application can access different bank accounts without the customer having to share his or her bank details without remembering user IDs and passwords. The transfer is effected through the Immediate Payment Service platform of NPCI.  KVB UPI can be downloaded from Android Play Store. 

The service, Bharat Bill Payment System (BBPS)  is offered through NPCI where in customers can make utility bill payments like electricity, water, gas, DTH and telecom services through a single utility, instead of accessing multiple sites.

Some initiatives, be it back-end or front end are broad-based and some are replacement with upgraded version. Now electronic clearing system is replaced with National Automated Clearing House (NACH). The bank has implemented IMPS, with an enhanced limit, in the Internet Banking also for retail and corporate customers to transfer funds instantly to their clients or staff. Innovation with offer of new facilities is the ongoing process on its internet banking platform too. In a way, every year the bank carries out innovations that one or the other way make each of its customers – be old or new generation - happy.

KVB has implemented Aadhaar Enabled Payment System (AEPS) transaction using Aadhaar based authentication in all its micro ATMs. In an AEPS transaction, an account holder can authenticate himself or herself using Aadhaar number and biometric fingerprints to prove his or her identity. It also rolled out Aadhaar enabled RuPay card, which can be used in the micro ATMs. The Aadhaar number is available in the magnetic stripe of RuPay card.

The bank’s card base, which include ATM card, VISA Master, Master EMV, RuPay Debit, RuPayKisan etc, is growing very fast, as the trend of cashless transactions is spreading rapidly. Following the withdrawals of Rs 500 and Rs 1000 notes and the call of government for encouraging cashless transactions, the bank responded with rapid addition of point of sales (POS) machines. Now the bank has 22,068 POS terminals, which is  more than double the previous year’s  10157POS terminals, in various merchant locations across the country.

Overall, KVB sees technology as a strategic business enabler to build a distinct competitive advantage and achieve superior customer service standard at much lower cost across all customer classes. It has augmented direct channels infrastructure and further embarked on upgrading its core banking systems. To ensure highly resilient IT infrastructure and its optimum utilization, KVB has implemented virtualization in its data centres that has led to a reduction in carbon footprint.

With the implementation of Enterprise Service Bus (ESB), a webservice-enabled infrastructure that supports intelligently directed communication and mediated relationships among loosely coupled and decoupled business components, KVB is well on its way in migrating to service oriented architecture. This will take care of its large technology-driven corporate clients and e-commerce players who require time sensitive payment and receivable processing.

In association with its Bancassurance partners, the bank launched exclusive products like BSLI Centenary Premier Solutions, an insurance policy for children and women customers in association with Birla Sun Life Insurance. In association with Bajaj Allianz General Insurance also the bank has launched KVB Mithra Health Card. With SBI Cards, it launched KVB SBI VISA Signature Credit Card.

On the social banking front too, the bank meets its commitment passionately in line with its institutional ethos. As a part of the Financial Inclusion Plan, the bank covered 117 villages and two urban locations through Business Correspondents as on 31st March 2016. These villages are spread across Tamil Nadu, Andhra Pradesh, Telengana and Karnataka. The bank rendered enough focus on financial literacy plan also as it is an integral part of PMJDY to let the beneficiaries of the scheme make best use of the financial services available to them.

The bank has an excellent HR Strategy in place recognizing the fact that the human capital is a valuable asset. Now the average age of employee is 33. As its overall business, number of branches and number of retirements increase, there is a need of fresh talents. The effective manpower planning and judicious recruitment policy ensure an excellent team of young people. Training sharpens their talents further. Time to time, reading the market reality and emerging trend, the bank adopts new strategy.

In 2009, the bank appointed Boston Consultancy Group (BCG) to set a transformation programme under Golden Vision, a structured long-term transformation program. The management of the bank felt the need of embracing the industry’s best practices, identifying new avenues for growth, re-engineering its processes to improve business effectiveness and building new capabilities that would develop future growth platform. BCG's overall engagement spanned across six and half years, in three phases.

 As part of revamping the organisatioal structure, the bank identified  four business verticalsCorporate and Institutional Group (CIG), Commercial Banking Group comprising mainly MSME businesses, Personal Banking Group (PBG) and Agricultural Banking Group (ABG).for more effectivebusiness focus.  A Transaction Banking Group was also set up to provide collection, payments and supply chain financing solutions to Corporate and Commercial banking Group customers. While CIG provides comprehensive client focused services for mid-corporate entities comprising working capital finance, term loans, specialised corporate finance products, trade and transaction banking services and liquidity management solutions, PBG looks at retail banking products, which include home, car and personal loans, Mr Venkataraman points out .  For  processing of loans of Rs 50 lacs and above, the bank has a Centralised Loan Processing Cell (CLPC) at various Divisions.

Agricultural Banking Group (ABG) offersassistance to individuals, groups and entities engaged in farming, agricultural processing business, entities supporting agricultural sectors, Jewel loans and warehouse receipt loans to farmers etc. There are specialized agriculture officers in divisions and branches to take care of the interest of agriculture segment.

Transaction Banking Group (TBG) renders a stabilised Cash Management Product (CMP) offering payment and now collection services for corporate clients. It also offers supply chain finance solutions, which come as a working capital function of any organisation through an integrated electronic transaction banking platform. The bank has a suite of transaction banking solutions, besides cash management services, collections and payments. Supply chain finance, vendor finance and dealer finance through its branches and correspondent banks. The bank is looking at this vertical as a niche business by which it anticipates improvement in the current account (CA) portfolio and advances portfolio in the years ahead.