The habit of saving is itself an education; it fosters virtue, teaches self-denial, cultivates the sense of order, trains forethought, and so broadens the mind – T.T. Munger
And, in the 100 years since its birth, South India-based Karur Vysya Bank (KVB; market cap: Rs5,100 crore), an old private sector bank, has been doing just that, says K. Venkataraman, managing director & CEO of the bank. “Most of our products and services are oriented towards small trade and enterprises.”
The financial needs of a small business are different from that of a large corporate. Mostly, such businesses do not have proper financial planning and need an advisory service. “The relationship gets strengthened because the customer depends on the bank,” adds Venkataraman. Lending to SMEs has been in KVB’s DNA right since inception and, like a few global banks that are known for their specialisations, Venkataraman wants KVB to be known as India’s SME bank.
It goes with the bank’s history. In 1916, in the middle of the First World War, M.A. Venkatarama Chettiar and Athi Krishna Chettiar KVB’s founders, had started the bank in its home city Karur, a small town with a focus on textiles, handlooms and agriculture. The bank’s first branch had come up in Dindigul, with the aim to inculcate a savings habit in the small business and resident community. The original promoters brought in their own money, while also raising seed capital, totalling Rs1.2 lakh, from family and friends. At that time, business was being built around the spinning and weaving mills of Karur, but cotton had to be brought in from the neighbouring states of Maharashtra, Andhra Pradesh and Gujarat. So, KVB followed the trade route to these states.
Branching out
Establishing branches along the way, the bank met new customers, who introduced it to friends and family within those regions – some even in different industries. As the bank gained knowledge through its relationships, it could share that information with its customer base. As the customers grew, so did the bank.
KVB has completed 100 years of operations in July – and it is only the second bank within this space to achieve such a distinction. City Union Bank, which was formed in 1904, was the first, while others, like Catholic Syrian (1920), Tamilnadu Mercantile Bank (1921), Lakshmi Vilas Bank (1926) and Dhanlakshmi Bank (1927), are yet to cross the mark.
Many of India’s public sector banks have been around long enough to celebrate a centenary, but it is rare for a private sector bank to achieve this distinction. Nationalisation in 1980 had taken into its fold all the larger private banks in the country. Since it engulfed only private banks that were of a certain size, a few small banks like KVB were allowed to maintain their private shareholding structure at the time. In 1980, at the time of nationalisation, the bank had established its foreign exchange business.
The business was robust right from the beginning, with the bank earning profits and paying dividend without interruption right from inception. Its finances were sound enough for it to acquire four banks by 1965 – the Selvavridhi Bank, Salem Shri Kannika Parameswari Bank, Pathinengrama Arya Vysya Bank and Coimbatore Bhagyalakshmi Bank.
Total business, which was at Rs500 crore in 1991, crossed Rs5,000 crore by the turn of the millennium. Within a decade, till 2011, it also crossed the Rs50,000 crore mark. Now, in 2015-16, the bank’s total businesses stand at Rs89,555 crore, with a net profit of Rs567.63 crore. With over 4.5 million debit card holders, its branch network has crossed 667, with the ATM network expanding to 1,652; cash deposit machines, to 389; and point-of-sale terminals going in excess of 10,000.
Fee income is aided through partnerships with Birla Sun Life Insurance and Bajaj Allianz General Insurance. The bank also distributes mutual fund products from players, including UTI, SBI, Reliance and Sundaram.
Over the years, KVB has built a unique shareholder base. Its list of promoter shareholders includes 29 members – all descendants of the original promoters, who now own only 2.16 per cent of the bank. Mutual funds hold about 16 per cent and foreign portfolio investors hold another 15 per cent, while insurance companies own 4 per cent and two FIIs (SAIF Advisors and Warhol) split 7 per cent between them. The only significant non-promoter, individual shareholder is stockbroker Rakesh Jhunjhunwala, with a little over 3 per cent stake.
It has been a hectic year for KVB, with centenary celebrations in full swing. Preparations, which have been on since 2015, had culminated into customer meets, musical events and inter-branch sports competitions. A book has been released on the bank now, as also a stamp and a special postal cover, by the Department of Posts. A sapling was planted by the then Tamil Nadu governor K. Rosaiah at the central office to commemorate the event, while a larger event last month saw the attendance of President Pranab Mukherjee, along with Chennamaneni Vidyasagar Rao, governor of Maharashtra and Tamil Nadu.
Alongside, business has continued to grow. Market conditions have increased the bank’s focus on retail lending and deposit gathering. While personal banking continues to be a thrust area, the current and savings account base grew 20 per cent last year. Over the last seven years, KVB has tried to revamp its image from a regional player to one that continues to provide customers digital access and alternate channels to bank from.
The agricultural loan book, at Rs7,000 crore, accounts for about 17 per cent of all advances. It constitutes direct lending to farmers and assistance to individuals and entities engaged in agricultural processing units, jewel loans and warehouse receipts. A ‘Jewel Loan Utsav’ was also conducted last year.
Going forward, the bank has positioned itself around core strengths, catering to small and medium business customers, with customised products, to cater to the needs of trade and industry. For instance, the bank provides credit to small business customers, whose credit needs are up to Rs25 crore. Its customised products include specialised ones for segments as diverse as timber, pharma, transport, textile, rice, steel and other commodities. Transaction banking services now include an electronic platform for cash management and supply chain finance.
A specialised initiative was conducted last year to strengthen the manner in which the bank sources loans and to provide mentoring, support and training to branch heads and credit officers. This is done through an ‘SMX App’, which tracks the sourcing of proposals, as well as processing, and provides an interface for the bank’s sales teams at the central office, divisional offices and branches. It has resulted in the sourcing of more than 900 proposals worth Rs2,500 crore.
“We are proud to be part of a team that is celebrating the centenary of the bank,” says Venkataraman. “Our customers have trusted us all these years – in many cases spread over three to four generations. Likewise, our shareholders and other stakeholders, who realise the value of our company, have remained invested for several years. Of course, much of this growth could not have come without the hard work that our loyal employees have put in.”
Over the next five years, KVB will focus on going digital, both on the retail as well as the SME business. “We would like to move our products and services to the digital side, which would reduce to a minimum the need for a customer to step into the bank,” says Venkataraman.
(This article is reproduced from Business India magazine. It first appeared in our issue dated October 10-23, 2016