Karur Vysya Bank reported its highest-ever net profit of ₹2,510 crore in FY26, driven by a sharper focus on retail, agri and MSME (RAM) lending, improved CASA mobilisation and lower reliance on bulk deposits. MD&CEO B Ramesh Babu tells Narayanan V about the retail and corporate lending strategy, margin pressure and the growth outlook for FY27. Edited excerpts:
What factors contributed to the record profit in FY26?
We started moving progressively towards RAM sector from corporate. Corporate yields are relatively lower than the RAM segment. This shift has supported the yield on advances. We also changed a few of our floating rate loans into fixed rate loans. Earlier, MCLR-linked loans used to be 30-35% and EBLR 55%. We have changed that MCLR book progressively to a fixed-rate book (at 29%). Our low-cost CASA deposits grew by 12% YoY (₹31,122 crore) in FY26 compared. We reduced our bulk as well as certificate of deposits. All this helped us to have the best interest income.
What is your Net interest margin (NIM) guidance for FY27?
Our NIM was 3.97% in FY26. Excluding one-off items like income tax refund, we achieved 4.25% in the fourth quarter. Deposits are still facing some tightness. So, we increased the interest on term deposits in April, which may have a bearing on our cost of deposits. A lot of earlier time deposits got repriced at a lower rate in the third quarter. So, the benefit we got in the fourth quarter we may not get this quarter. We expect the cost of deposits to go up and yields on advances to contract. Keeping these two factors in mind, we are guiding for 3.7-3.8% in the coming year.
Will you look at growing the corporate lending book again?
The share of corporate loans used to be 35-40% and we brought it down to 14%. There was a continuous de-growth in corporate for the last 2-3 years. We saw 12% growth in the corporate loans this year. We also started investing in credit substitutes. If the same non-convertible debenture is there in the bond market, we are investing in that. At least you are sure of the yields for the next two years. We can take corporate to 20% in the next 2-3 years so that the mix between RAM and corporate can be 80:20.
Has the West Asia war impacted your MSME portfolio?
There is no direct impact for us. If an importer is not paying, the exporter has to pay because we have collateral. Due to crude oil price increase and other things, there will be a second-order impact on logistics, automobile sector, chemical factories, fertilisers and ceramics. We have thoroughly analysed all these sectors. If at all this precipitates and these people cannot insulate themselves, there can be issues. Our risk management department found it prudent to make Rs 163 crore in provisions during the fourth quarter. Once there is clarity and business becomes usual, we can comfortably reverse the provision.
Credit growth at 17% continued to outpace deposit growth of 13% in FY26. How do you see FY27 shaping up?
If we grow aggressively (on lending), there can be chances of accidents. We need to know when we need to lie low. We will see how things are panning out at least for three months. Our aim is to grow 1-2% above the industry. On the deposit side, earlier we had a credit-deposit ratio, but now we have the liquidity coverage ratio (LCR), with a minimum requirement of 100%. If you are raising money and not deploying it into advances, it will impact your margins. So, we are maintaining LCR at 115%-120% and planning deposit growth in line with LCR requirements.