We’re in conserve, consolidate mode; crisis a great time to go digital: Mahabaleshwara MS, CEO, Karnataka Bank

April 22, 2020 4:30 AM

Loan waiver schemes for agricultural loans introduced by some of the state governments may also help reduce stress to some extent.

As of now, we at Karnataka Bank are on a ‘conserve and consolidate’ mode.As of now, we at Karnataka Bank are on a ‘conserve and consolidate’ mode.

By Hariprasad Radhakrishnan

In the wake of the COVID-19 pandemic, Karnataka Bank is on a ‘conserve and consolidate’ mode, says Karnataka Bank MD & CEO Mahabaleshwara MS. In an interview with Hariprasad Radhakrishnan, Mahabaleshwara further says digital product utility should improve in the current scenario. He adds that the bank is going through a transformation ahead of its centenary year through a tie-up with BCG in human resources, credit and IT. Edited excerpts:

About 25 days into the lockdown, what do you think would be the impact of the pandemic on your bank and the sector?
On account of the RBI’s corona relief package, the stress got paused for three months across the sector. The future depends on how effective we are as a nation to contain the pandemic and how quickly we restart our economic activities once the crisis is over. As of now, we at Karnataka Bank are on a ‘conserve and consolidate’ mode.

What would be your credit growth outlook, given the current market conditions?
For the entire banking sector, I believe credit growth will be in single digit for FY20. For our bank, it would be in the same level or slightly higher. For the first nine months, credit growth was not very significant. For the next financial year, it could be in the range of 12-15% for our bank. In our bank, the retail credit has grown at 11.5% for the first nine months. The mid-corporate segment has grown at a rate of 10.5%, whereas in the corporate segment, we made a conscious decision to degrow. There is a negative growth of 9.5% in the corporate segment. As a result of the fundamental realignment of the portfolio, credit growth would be impressive in the retail and mid-corporate, and the overall credit growth may get moderated. We have made a shift from consortium and big-ticket advances to mid-corporate and retail segments, where the risk is well-diversified and the yield is higher.

With the gross NPAs having risen to 4.99% in Q3FY20, do you think the stress in your book has been already recognised?
Yes. It was mainly on account of stress recognised in a few of the NBFC sector advances. Further, we have taken a cautious approach of reducing the exposure to the corporate sector gradually by concentrating on retail and mid-corporate.

Do you expect any slippages in your agriculture and MSME books?
Slippages in agri & MSME books may not rise, rather they may continue at the present rate. Loan waiver schemes for agricultural loans introduced by some of the state governments may also help reduce stress to some extent. Hence, the chances of further slippage appear to be less.

As customer behaviour may change in the time of social distancing, how are you tailoring your products and services?
It’s an excellent opportunity for the banking industry and customers to go digital. Digital product utility, especially in mobile and internet banking, should improve, and cashless and less-cash transactions should gain momentum. We are further popularising all our digital products. There is increased traction in terms of mobile banking and utilisation of internet banking. We are also increasing the number of e-lobbies of the bank.

Did you see any significant outflow of deposits after the Yes Bank crisis?
For a short period, there was doubt in the minds of some of the customers regarding the safety of their deposits. It was fuelled by a private TV channel, which had given an adverse opinion by inventing their own ratio called ‘M-cap to deposits’ ratio. This had caused some anxiety among some depositors, but it has now been allayed. Moreover, we have been in this space for a long period of 96 years. We have been profitable and our Capital to Risk Weighted Assets Ratio at 13.17% is one of the best in the industry.

For small- and medium-sized banks, do you see any challenges in capital augmentation?
Capital augmentation is a continuous process. Once in 2-3 years, we may have to approach our shareholders. In the past, there was good response whenever we went for our rights issue. In fact, last time, it was oversubscribed by almost 1.85 times. Of course, there are other ways of capital augmentation, viz, through private placement or through qualified institutional placement.

How’s your tie-up with BCG helping you?
This has been one of the best things to happen to our bank as we aimed for holistic transformation. We are a first-gen bank and would be celebrating our centenary year in 2023-24. To prepare the bank for its second century, we wanted to reposition ourselves to emerge as the ‘bank of the future’. For this, we have treated our own staff as change agents so that the transformation is sustainable. We are going through HR, credit and IT transformation. All of these initiatives are driven by IT. Several initiatives have been taken in HR to fine-tune the attitude of our staff and reskill them. In the area of credit, the future belongs to digital sanction of loans. If you want a housing loan, our officers would approach the prospective clients at their preferred location. They would get all the required information and within 15-20 minutes, we will be in a position to give in-principle sanction for home loans based on a BRE (business rule engine) developed in-house at our digital CoE in Bengaluru. We have already rolled out the digital sanction solutions for home loans, salaried-class personal loans and car loans, and would be extending this to the MSME sector as well.

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