Focussed Small Business Bank


Friend of small business


Karur Vysya Bank

Smart Banking for small business

A century of admirable track records with no loss or major concern of delinquency ever in its history speak for how firmly the Tamilnadu based Karur Vysya Bank (KVB) has run its business roots and how well it has taken care of its small business customers over the years. Many are third generation customers, while it is well on its way in acquiring new class of customers. KVB has immaculate legacy in small business banking that is flourishing now, much to the envy of its peers. In any manner KVB is a specialised and fully integrated MSME bank with strong market position in many fast growing business centres, clusters and towns in the country.

 

 

A century ago Karur Vysya Bank was founded by two visionaries Shri M A VenkataramaChettiar and Shri Athi Krishna Chettiar with an intention to serve small business, individuals and agriculture community. Karur is a small textile town in Tamil Nadu with a rich tradition of entrepreneurship. 

Over the years, much has changed in the banking industry and in every other business. Expectations and demands of individuals, farmers and entrepreneurs have changed. The way lenders used to approach their customers has changed. Reforms have opened floodgates of opportunities for small enterprises, whose local businesses have eventually become national and global. The banking industry has seen new players looking for a share, more aggressively.  But old local players like KVB moved ahead of time, after a long wait in the early years. 

Nevertheless, the bank’s fundamental ethos did not change as it still continues to grapple with the original mission. As the bank moved from place to place finding footprint pan India, each of the branches seems to take care of the local banking needs of entrepreneurs, farmers and individuals. Hence, the bank is a virtual local player in myriad of small cities and business clusters, where it has established presence. Today, out of its 711 branches across the country, more than 200 branches are located in potential industrial clusters across various States with large number of them in Tamilnadu, Karnataka, Andhra Pradesh, Maharashtra, Gujarat, Punjab, West Bengal, etc. besides Delhi and Chandigarh. In some of the potential textile export hubs like Tiruppur in Tamilnadu and Ludhiana in Punjab, KVB already has strong customer presence.

In similar way, the bank is looking at other export hubs in the country and vigorously building its position further as a niche player in the Micro, Small and Medium Enterprises (MSME) sector. Now MSME business of the bank constitutes roughly a third of its fast growing advances.

MSME sector, which accounts for 45 per cent of the industrial production, contributes around 35 per cent of India exports and generates direct employment to over 60 million people.  Virtually every large industry in the country is directly or indirectly dependent on or linked with the MSME sector, as their vendors for one or the other services, including supply of materials. In fact, this sector plays an important role in India’s socio-economic development. This sector can trigger rapid economic growth if supported with adequate and timely credits, experts say unanimously. Studies say a vast majority of small business, including many eligible ones, do not get credits from the formal banking system either for their poor book keeping or unprofessionalism. Still many of them are creditworthy with a potential to grow in size rapidly if they are given guidance and lessons on credit discipline and accountability. KVB keeps this factor in mind while providing banking services to the small business segment.

As far as MSME sector is concerned, the bank knows in each location the nature of local business is different, so are the future growth potentials, customers’ demands, character of the farm and service sectors business etc. But the service basket of the bank is comprehensive that is designed with extraordinary astuteness and customers’ business suitability. Each product is calibrated to suite the business clients’ appetite, their digestibility, business viability, rationality in projection, figures in fine print and reality on the ground, besides the risk a unit may face under various circumstances.

When a customer approaches the bank with their proposals its managers guide them to pick up what is perfectly fit for them. If there is any mismatch or imprudence in their calculation its managers help them redraw their plans to make them fit for commercially sensible implementation. Such actions help entrepreneurs make right calculations and save themselves from the risk of debt over-exposure. “Credit is not at all a problem for deserving customers. We want them to be disciplined in terms of credit, which they have to repay on time. We don’t want them to take more than what they need and what they can service through their business revenue,” says Mr K. Venkataraman, Managing Director and CEO of the bank. The workability of the project and ultimate receivables that the business sees must be thoroughly convincing to the management, he avers.

At the same time, the bank also doesn’t let any serious customer return with disappointment once he or she comes for banking with it. “When they approach us, we also try to understand from them what they are not comfortable with in our existing service offers and what they expect from us further,” he points out. That way the bank continuously tries to identify the area where there is a scope for improvement, he adds. Indeed, the bank knows the DNA of small business operating in all sectors, in any geography, thanks to its long years of dealing with the small businesses. The bank is always ready to go extra mile for serving small business clients without sacrificing what is called prudence in banking business. That way, thousands of small business units have flourished and many of them could not forget the timely help the bank has extended to them for their progress in business. They still continue to be the bank’s loyal customers. 

Notably, the bank’s assistances to its small business clients to take judicious decision in terms of credit exposure and adopt good credit culture have helped them save their business from the risk of debt traps. Future of every business is unpredictable. A boom will also follow a slowdown. Slowdown usually triggers sudden crisis among small players and consequently default in repaying credits. But a prudent strategy will help the business units remain safe when there is an economic downturn.

In the case of KVB such eventuality is relatively less mainly because of its prudential banking culture, Mr Venkataraman bets. That is one of the reasons of KVB’s lowest NPA in the industry. Some banking sector analysts rightly say KVB’s asset quality is admirable. Its style of close and convincing interactions with small business customers not only give the prospective customer an idea of how judicious their business plan should be before making a presumption of revenue and cash-flow and drawing a project on anticipated credit exposure from lenders. That has also been a factor that influences the bank’s asset quality and sustained relationship with its customers for many years.

For lenders, crisis is not a shock but part of their business. They are naturally prepared for facing this. A committed lender like KVB,having a strong will to stay with troubled customers, takes preventive action too for which there are predetermined plans. The bank, accordingly, has drawn a Code of Commitment to Micro and Small Enterprises. That speaks enough for its care of the sector when small enterprise customers face difficulties in their business. MSMEs may face crisis for internal and external economic reasons. Lenders cannot leave the troubled business units in lurch when they pass through bad phases, KVB management believes. As a responsible and professional lender, KVB has always been staying with them, offering the best possible services for their growth and will continue to be with them, Mr Venkataraman reassures. Many of its customers have been relying on its services for many years. That itself indicates the bank’s all-weather care for them. Their crisis shouldn’t be any reason for severing their relationship with the bank, he says.

The bank says it considers cases of financial difficulty sympathetically and positively on realistic ground under various circumstances that call for urgent assistances. In a way, the bank promises support to those clients who communicate with its management about its business status on real time basis. Wherever there is a need of speedy intervention and action, the bank has been ready to address the concerns instantly, he points out.

The bank’s Code of Commitment that addresses MSME customers says in straight and simple ways:You will usually identify problems first and should let us know about these as soon as possible. If we become aware of problems, we will let you know of it in writing. If speedy action is warranted, we may contact you by phone, fax or e-mail.” The Code also enlists generally foreseeable concerns that an average unit may face when their business passes through a bad-patch, as the bank has seen over the years out of its own experiences.

Often some units may face delay in commencement of commercial production, which results in cost overrun and projection going wrong. On the other side, some of the units make inordinate delays in submission of periodic information like stock statement, renewal data, audited financial statements, etc. Some units frequently exceed their credit limit. Cheque bouncing cases in cash credit and current accounts are also common. There are times business units show drastic changes in turnover which are un-clarified and uninformed. Reports on closure of units, incurring losses, decision on sales of a large part of units, misappropriation and diversion of credits sanctioned for a purpose, inordinate delay or uncertainty in realization of sales invoices, default in payment of bills, what caused stopping of material supplies which are necessary for running the business, diversion of sales proceeds to other accounts without the knowledge of lender, concealment of information pertaining to legal action or serving of winding up notice, debts through unauthorized sources or through money lenders etc are often camouflaged by some units that only aggravate their troubles. Many business units practice such serious lapses. Then enterprises turn incapable of servicing their debts, beginning with defaults in payment of interest within specific period. There is no need for such troubled entrepreneur to hide anything from the lender – especially banks like KVB, whose business is to help them come out of their troubles through credit and other necessary advisory services. 

These are the concerns that bother the bank, especially when the borrowers cut their communication with it. “We ask our managers to be in close touch with them and understand their concerns directly so that we can be helpful to them in better ways. Entrepreneurs should also talk to us frankly about what concerns them in their business,” says Mr Venkataraman. As far as KVB is concerned these apprehensions are more acute since it has a culture of looking after its business clients more carefully so that they stay healthy in their business forever. Today, why most of the customers are happy with it is for this reason. They are grateful to the bank not only for the credit and other banking services but also for preventive guidance. Eventually, the bank builds quality customer base with loyalty and trust on it.

KVB also tells its MSME customers in writing which anyone can read in public domain: “We will do all we can to help you overcome your difficulties. With your active co-operation, we will develop a plan for dealing with your financial difficulties and we will tell you, in writing, what we have agreed to. We will endeavour to provide you with credit counseling services so that we can be of help to you in dealing with your financial problems.” Further the bank also says, “If you are in difficulties, we will work with your advisers, if you ask us to. It is important that you act in good faith, keep us informed about developments, keep to your agreement with us and are prepared to make necessary changes early enough.” That is indeed a direct promise by the bank to its MSME customers. That is, of course, much more than any lender may be willing to do. The bank also considers nursing back a troubled unit through an acceptable restructuring solution when the clients’ borrowal account remains NPA for three months or more or if their accumulated losses have led to an erosion of 50 per cent of their net worth.

Rehabilitation and debt restructuring are common practices during the period of massive crisis. KVB always does it with high degree of care. It takes up proposal for rehabilitation or debt restructuring under some workable conditions. In such cases, the bank examines possibilities of revival, viability of the business and its potentials besides the view of the business owner within three months the units fall sick.[ If the promoters find their units viable and revivable, they can present their report. In those revivable cases where there are consortium arrangements in which KVB has higher share, the bank comes forward with restructuring offer without any ambivalence. On the other side, in case a unit is declared unviable, the case is taken up to the consideration of higher authority designated to take a call on this. If the bank finds rehabilitation plan unworkable it will convince the entrepreneur how unfeasible it is going to be and even suggest their advisors to look for other options so that some solutions may be worked out. “We don’t easily give up anyone and say “no” to any case without thoroughly applying our wisdom. Our approach is always transparent and workable for small entrepreneurs who have the record of integrity and honesty,” says Mr Venkataraman. The rehabilitation package, which must be implemented in 60 days once the request is lodged, will also include the promoter’s contribution as per Reserve Bank stipulations. ][V1] 

The product and service portfolio that the bank has built can comprehensively address the needs of MSME units. While new products are rolled out according to the demands of time and changing economic atmosphere, existing products are innovated with more value addition. An average unit can find not only plain-vanilla credits but also investment and risk cover products in its basket.  Since every branch of the bank offers all kinds of products ranging from corporate banking to MSME, agriculture and personal banking, a business unit can depend on the bank for entire gamut of commercial banking services, besides a host of para-banking services. As the reach of the bank is expanding across the country and its technology architecture capable of delivering its services quickly any small business unit located in any part of the country can find dealing with it comfortable enough to stay linked with their clients in other cities. The networked operations of the bank help them  find an easy mobility and quick realization of outstation payment.The bank knows MSMEs are not homogenous in nature, but vastly diversified. India’s MSMEs numbering in millions manufacture more than 8000 products and offer myriad of services. While many units are finding flourishing opportunities some are ailing. Looking at the nature of their common requirements the possible troubles at times, the bank has built a range of products. The products, which are currently available in the basket of the bank, are so flexible that can meet the needs of every business unit, whatever be the nature of their business. There are some standard products, besides tailor-made products for different sectors and for different clients.

Every year, as it rolls out newer products, a good chunk of them used to focus on the small business sector. Last year when the bank unveiled 18 new products and services as a part of its Centenary special initiatives, many of them were dedicated to the small business sector. For the trading and SME sectors, it launched KVB Commodity Plus, for dealers of pulses, cereals, spices and edible oils; KVB Food & Agro Plus for units engaged in the processing of food and agro products, KVB Construction Plus, for dealers of construction materials and KVB MSME Easy Loan for units with turnover of less than Rs 1 crore engaged in manufacturing or service.

KVB MSME Standby Term Loan, KVB MSME EXPO, KVB MSME Vendor Bill Discounting, KVB MSME Cash, KVB MSME Term Loan, etc are some of the standard products for various businesses and for various purposes. These products carry attractive features.

KVB MSME Standby Term Loan is a pre-approved line of credit in addition to the regular working capital limits. The existing customers with internal rating of over 60 marks and new customers with internal rating mark of 70 are eligible for this loan, which is given for capital expenditure like capacity expansion, technology upgradation or for creating tangible assets. The threshold limit of this loan is Rs 1 crore, but restricted to 25 per cent of the sanctioned working capital. Once it is sanctioned, the customer can avail of this within 12 months and repay over a period of three to five years.

KVB MSME Cash is a short term open cash credit facility in the nature of special over drat for working capital requirements. This is rendered for procurements of raw materials for business related usages or for meeting the expenses of procuring ISO Certification and/or Research and Development expenses. The customer can withdraw this money from any of its branches through multi-city cheque facility. [V2]  The borrower can repay the credit through 36 monthly installments.

KVB MSME Term Loan is a short to medium term loan for acquisition of fixed assets relating to business. This facility is also offered for augmentation of long term funds and improvement in current ratio or for any other general business purposes, except for the purpose of financing of factory land. The bank disburses this loan on the basis of the progress of the purpose that the loan is sought for. The margin of this loan, which has repayment tenure of three to seven years, is fixed at 20 per cent in the case of buying machinery and 40 per cent in the case of building. [V3] 

KVB MSME Vendor Bill Discounting is a bill discounting facility that  carries competitive interest rate. This is allowed only for working capital purposes with repayment tenure of 120 days. This facility with a margin of 15 per cent of the value requires primary security as documentary usance of bills drawn on reputed companies, including public sector enterprises, accompanied by proof of dispatch and delivery of goods.

KVB MSME EXPO, is a combined pre and post shipment facility, is given for working capital purpose. This is a running facility for established exporters. This credit is valid for 12 months and renewable every year. The primary security required for this is exclusive charge on current assets and collateral of exclusive charge on entire fixed assets of the unit with a minimum of 75 per cent of aggregate exposure. Alternatively, the bank also accepts other tangible assets equivalent to minimum 75 per cent of the exposure.There are many sector-specific customised products, which include products like KVB Timber Plus, KVB Pharma Plus, KVB Transport Plus, KVB Textile Plus, KVB Rice Plus, KVB Steel Plus, KVB Commodity Plus etc. These are tailor-made to meet the specific necessity of the respective trades.

Most of the KVB MSME loan products are designed for availability without cumbersome process. In fact, as Mr Venkataraman notes, “the bank always tries to simplify the process and make sure its MSME clients get the best of its talent.” In this process, the bank keeps on upgrading and innovating the features of the product to suit the time and necessity of the business. For instance, some of the industries are exempted from obtaining stock statements. They need to have only receivables statements, with age-wise classification on monthly basis.

KVB has signed memorandum of understanding (MoU) with Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE), by which CGTMSE provides guarantee cover on credit delivered by the bank up to Rs1 crore to the eligible micro and small enterprises without collateral security or third party guarantee. The bank also has arrangements with SMERA, ONICRA, ICRA and CARE for enabling its MSME customers to get rated. Better rated units usually get the benefit of lower interest rate.

On the other side, the bank encourages MSMEs to perform for which it has partnered with Dun and Bradstreet to recognize the best small and medium enterprises in the country. With DNB the bank has instituted the KVB – DNB SME Business Excellence Awards. Last year,  26 entrepreneurs were recognized across 23 categories.

Its cutting-edge technology platform enables the MSMEs get multicity cheque facility for transaction with any of their clients across the country.“We simplify the process and make sure our SME clients get the best of our banking talent,” says Mr Venkataraman. Technology has always been a strong point of KVB. In fact the bank has been winning the IDRBT award seven years straight in the small bank category for IT management, ecosystem and new products. The digitisation process for processing loan proposals  resulted in reduction of turnaround time considerably. The introduction of Lead Management System has ensured efficient lead capture, timely customer meetings and effective capture of customer responses, he says.

The bank has a strong domain knowledge and also strong presence in all the sectors it operates. The technology sophistication also will make its customers easily interact with the top management of the bank to share their views about service and concerns. As it is planning to extend the digital banking operations beyond normal banking hours, every business units can transact with the bank on real time basis from wherever they are stationed. As far as possible the bank is also trying to make staff available for assisting its customers directly for maximum possible time.    

KVB has umpteen number of MSME success stories to speak, many are exciting. Not many other banks in the country may have such excellent stories of customer contentment and loyalty spanning through three generations. Wherever it moves now, people accept it and find enough coziness with it by virtue of its products which are flexible in nature, excellent delivery infrastructure, and above all its friendly approach. These qualities make the bank’s position invulnerable to competition. Its century long experience of lending to small business segment galvanizes its aim of building its strength further in the MSME segment. It will identify more niche areas as it is more actively looking at enhancing its presence in various clusters, besides broad-basing its range of products, within the vast and heterogonous MSME sector.

Given the fundamental nature of the bank, its tradition and position that it has established over the years KVB is ideally positioned as a specialized SME Bank.  It is consistently trying to make itself a unique player dedicated fully to the sector with new tailor-made and standard set of products catering to different types of industries in the sector.

  

 

 ·         This Commercial Banking Group (CBG), a  business group within the bank, gives dedicated focus on the MSME segment, traders and others whose credit needs are up to Rs 25 crore. It offers industry specific products on the basis of its understanding of customers’ businesses, market conditions and industry developments. This distinctive approach translated into mutually beneficial relationships with customers in these segments.

 

 ·         As a responsible lender, Karur Vysya Bank has always been with small business units, offering the best possible credit and advisory services for their sustainable growth. We will continue to be with them, offering more delightful products, Mr K Venkataraman reassures. Many of its customers have been relying on its services for many years. That itself indicates the bank’s all-weather care for them. Their crisis shouldn’t be any reason for severing their relationship with the bank, he asserts.

 

 ·         The bank promises that it will do all it can to help MSMEs overcome their difficulties. With their active co-operation, the bank will develop a plan for dealing with their financial difficulties and it will tell the troubled units, in writing, what it has agreed to. The bank will endeavour to provide them with credit counseling services so that it can be of help to them in dealing with their financial problems. If any of its MSME customers are in difficulties, it will work with their advisors, if they ask for. It is important that MSMEs act in good faith, keep the bank informed about developments, keep up to their agreement with it and are prepared to make necessary changes early enough. That is indeed a direct promise by the bank to its MSME customers.

 

 

MSME Sector's Contribution to Indian Economy

 

·         Contributes 45% of industrial production

·         Thirty five per cent share in exports

·         More than 8000 products

·         Indian economy’s major growth driver

·         Model of socio-economic policies of the government

·         Social focus on government to make them globally capable

·         As many as 45 million business units

·         Employment for several millions

 

 Importance of MSME sector

·         Contribution to employment, growth and wealth distribution

·         Provide economies with greater flexibility. Low fixed cost

·         Competitiveness in market place

·         Seed bed for entrepreneurial ability and innovation

·         Balanced Regional development

Lending under priority sector under the MSMED Act, 2006 is classified as:

·         Micro and Small Enterprises engaged in the manufacture or production, processing or preservation of goods

·         Micro and Small Enterprises engaged in providing or rendering of services

·         All advances granted to units in the Khadi and Village Industries Sector (KVI), irrespective of their size of operations, location and amount of original investment in plant and machinery

·         Under Indirect Finance:

Advances to persons involved in assisting the decentralized sector in the supply of inputs and marketing of outputs of artisans, village and cottage industries

Advances to cooperatives of producers in the decentralized sector viz., artisans, village and cottage industries
Loans granted by banks to NBFCs for on-lending to Small and Micro Enterprises (manufacturing as well as service)

 

 Present challenges

·         Creating awareness about the importance of proper book-keeping and accountability

·         Building professionalism

·         Ensuring supply of credit on time

·         Creating a credit rating culture

·         Creating knowledge of the market and helping them reach the market

·         Cash flow and business consistency

·         Technology upgradation for building competitiveness and efficiency

·         Credit discipline and creating awareness about use of credit for sanctioned purpose and prevent misappropriation

·         Access to world market

·         Vulnerability to large corporate’s failure and their payment delay.

·         Saving many units from falling into the trap of private money lenders

·         Hiring professional services for keeping the house in order and advice for business growth

 

 

New hopes

·         Liberal support from Central and State governments

·         Change in financial institutions’ approach towards small units and their willingness to do business with them on easy terms.

·         Banks’ innovative products and negotiable terms and flexibility

·         Credit guarantee scheme. Easy credit availability without collateral security

·         Lenders’ willingness to offer rescue measures when units are in trouble

·         Lenders endeavour to create awareness among small business units about the importance of proper book keeping and accountability.

·         Lenders’ close interaction with small units and timely guidance to comply with statutory norms.

 

“We don’t easily give up anyone and say “no” to any case without thoroughly applying our wisdom. Our approach is always transparent and workable for small entrepreneurs who have the record of integrity and honesty.”

 Mr K. Venkataraman, Managing Director and CEO

Karur Vysya Bank