Karnataka Bank NSE -0.31 percent, a private banks with headquarters in Mangaluru and preparing to celebrate its centenary in the next year, reported an all-time high annual net profit of Rs 508 crore in the fiscal year 2021-22. ET’s KR Balasubramanyam sits down with the bank’s MD & CEO Mahabaleshwara MS to talk about the bank’s expansion and future goals. A selection of cut excerpts:
Your most recent performance has established a new standard, right?
You got that correctly. We not only had a net profit of over one hundred crore rupees for the whole fiscal year, but we also exceeded that threshold for each individual quarter. Our fundamentals have also demonstrated significant traction, as seen by the fact that our CASA was at 32.97 percent, our PCR was 73.47 percent, our CRAR was 15.66 percent, and our NIM for the year was 3.18 percent, while our NPAs decreased. This goal was made possible thanks to a series of tactics that we implemented as part of our transformation journey, which was known as KBL-Vikaas and was led by Boston Consulting Group (BCG), who served as our consultant. In point of fact, we are now working towards the KBL NxT projects while also in the process of implementing KBL-Vikaas 2.0.
How are you preparing your bank to continue to be competitive as it approaches its centennial anniversary the following year?
We started working with BCG four years ago with the intention of transforming Karnataka Bank Limited (KBL) into a bank of the next generation before the company reaches its second century of operation. We went out to every member of our employees, informed them of the upcoming possibilities, and empowered them to play a part in the Bank’s path toward its vision.
After determining the areas that need change, such as advancements, human resources, technological advances, and the customer experience, we were able to effectively execute the work. To better serve our customers, the whole KBL crew is now functioning as a sales and marketing team.
How far do you intend to take the implementation of the technology?
We are in the process of evolving into a modern bank that will have a banking culture that places a greater emphasis on marketing and sales. Because of our investment in technology, we can now compete on an equal footing with any modern bank. We are one of the few financial institutions that does digital underwriting for consumer loans.
In order to generate digital innovations and technology value-adds, we have established a Digital Centre of Excellence in the city of Bengaluru. Under the KBL-Vikaas 2.0, we have also identified a few key areas that need to be improved in order to further our transformation path.
We will have a digital solution that covers the entire banking process, from dealing with customers to dealing with employees and everything in between. For example, we have implemented 24-hour monitoring systems (Elfrms) to reduce the risk of fraud on digital banking platforms, which has contributed to an increase in customers’ levels of confidence in these services. To further expand our presence in other countries, we are considering establishing a representative office in the United Arab Emirates (UAE).
How have customers reacted to the various technology interface efforts that your company has undertaken?
According to the data, our clients are becoming more receptive to the digital experience we provide. When compared to the percentage that was approximately 32 percent roughly ten years ago, the majority of day-to-day transactions now take place in digital format. On a different level, the bank has been able to save money and operate more efficiently as a direct result of their greater use of technology. Clients will feel more confident and satisfied with their banking experiences as a result of this aspect of digital empowerment, which also makes it easier for customers to carry out their financial transactions.
What are some of the more recent areas of growth?
Karnataka Bank has been designated as the agency bank by the Reserve Bank of India (RBI), which gives us the ability to undertake government business. In addition to driving up our CASA numbers, this presents us with a fantastic chance for cross-selling. This sector is going to expand as we reach out to the governments of additional states and union government entities. On the loan side, co-lending activity is ramping up, and we will continue to investigate all of the new pastures as they become available.
What do you anticipate the effects of inflation will be on your company?
Regarding this matter, we maintain a high level of vigilance. The rate at which we make progress is quite encouraging. We are seeing an uptick in economic activity at the grassroots level. Despite the fact that we were busy conducting business during the Covid-19, we never lost track of our long-term objectives. We went out to our clients while maintaining a sharp concentration on the quality of our assets, and we did our best to assist them during their tough times. We are going to keep monitoring the developing circumstances and putting our attention on maintaining a healthy rise in interest earning assets.
Your bank, along with other older private sector banks, is in danger of being squeezed between more modern private banks and fintech companies that are vying for customers’ business. What steps do you need to take to ensure that you continue to expand your client base and market share?
In my opinion, financial technology companies and other types of new financial businesses do not pose a danger to traditional banks. Instead, they serve as complementary business enablers for the banking industry. The function that they perform is also important. We have partnerships with a number of fintech companies in order to accelerate business growth and investigate new facets of banking, such as neo banking, for example. A successful partnership between fintech companies and banks will undoubtedly result in mutually beneficial outcomes for both parties.
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Even though our universal bank in the private sector has been around for a long time, we are able to adjust quickly to new circumstances. At this time, the digital sanctions that fall within the qualifying retail loan sanctions are on par with those of newer generation private sector banks. When it comes to personal loans for those in the salaried class, the rate is completely 100 percent.
We are currently on pace to make significant progress in increasing our market share in the future. We are in the midst of a mission mode to on-board all different kinds of new-to-bank clients (NTB), with a particular emphasis on millennials. Our mobile banking application, which goes by the name “KBL Mobile Plus,” is well-liked and user-friendly. A user may carry out the majority of their banking tasks 24 hours a day, seven days a week using this app.
You set a new high mark for profits in the previous year. However, the price of your stock is currently at the same level it was ten years ago. What steps is the bank doing to pique the attention of potential investors in the institution?
Not merely a company’s financial performance alone may explain fluctuations in the price of a stock; rather, it is a mix of elements, including attitudes. We are still primarily a bank that caters to retail shareholders. I have reason to believe that the trading of our shares, as well as the share price, will begin to pick up steam as we move forward. Despite this, the book value of the share has been steadily becoming upward. In point of fact, it went up from Rs 137.99 to Rs 227.83 at the end of the decade, which occurred on March 31, 2022.
You had mentioned that your NIM performance has not yet reached its full potential, right? What steps are you going to take to increase that number?
Over the past few years, our NIM has seen significant development. It increased by 27 basis points from 2.91 percent in March 2021 to 3.18 percent in the financial year 2022, bringing the total to 3.18 percent. I believe that the NIM is well positioned for further improvement given the many enablers that are currently in place. These enablers include a consistently improving CASA, a lower cost of funds, a healthy spread, improving asset quality, healthy credit growth, a lower credit cost, overall improvement in efficiency, etc.
How does Karnataka Bank plan to overcome the obstacle of fierce rivalry in the banking sector, which is racing after retail customers as well as small and mid-sized corporations?
After new companies were allowed to enter the market, there was an increase in the level of competition. Our hallmarks have been digital capabilities, excellent customer service, and steadfast client loyalty. Both the retail and the mid-corporate sectors have shown signs of healthy development, which we have noted. Our ability to approve loans in the shortest amount of time possible is one of the selling points that draws clients to our bank. Along with the agribusiness and mid-corporate markets, retail and micro, small, and medium-sized businesses will continue to be a primary emphasis for us this year. As a result of the fact that we have a reliable credit monitoring system that assures the quick collection of dues on or before the due date, I anticipate a growth that is both sustainable and healthy moving forward.