Karur Vysya Bank bets big on low-cost deposits to capture the retail and MSME goldmine

Tamil Nadu-headquartered The Karur Vysya Bank’s (KVB) goal is to prioritise retail and MSME loans with an emphasis on yields and granular loan book diversification. It also aims to maintain robust collection and recovery mechanisms to uphold asset quality. Currently, the bank’s commercial portfolio stands at 33%, with standalone MSME at 23% and retail also at 23%. In retail, housing loans and mortgage (loan against property or LAP) loans account for the big segments of the entire retail loan book—at 45% and 21%, respectively. However, in the cut-throat retail and MSME segments, there are big players to wean away customers. It is for this reason that the bank is focussing on low-cost current account and savings account (CASA) deposits. The bank’s CASA ratio stood at 29% as of September 2024, lower than the average for most private sector banks. Foreseeing a challenge, KVB established an exclusive sales vertical for accelerated acquisition of new-to-bank customers in the Liabilities segment through an increase in ‘Feet on Street’ marketing activity. It has adopted a segmented approach with exclusive sales teams focussing on separate segments. MD &amp; CEO B. Ramesh Babu says KVB has launched 24 new CASA products tailored to different customer segments. “Concurrently, efforts have been made to strengthen the branch network to deepen relationships with Existing to Bank (ETB) customers by addressing their needs. With strategic initiatives in deposit mobilisation, term deposits have grown by 20% year-on-year (YoY) at the end of September 2024,” he adds. KVB’s focus is on the MSME sector, and in that they aim to increase digital lending and providing funding solutions, among others. “We want to expand into underpenetrated markets (via digital and physical channels), continue to foster partnerships with NBFCsfintechs for co-lending, and reinforce compliance frameworks,” says Babu. Per the BT-KPMG study, the bank has secured the highest rank in asset quality with net Non-Performing Assets (NPAs) at 0.40% of advances and has retained its position as the Best Small Bank. The return on capital employed (ROCE) is also the highest in the category. “The bank continues to deliver strong earnings growth, with PAT and peer-best RoA at 1.7%, driven by strong and stable margins at 4.1%, contained opex (operational expenses), and higher recoveries. Credit growth moderated due to the strategy to pull out from the low-yielding corporate book and deceleration in the PLVF book,” says financial services firm Emkay Global Financial Services. Anand Rathi, another financial services firm, attributes stable NIM and a strong traction in non-interest income for a sturdy Q2 operating performance. DRIVEN BY DIGITISATION Pre-approved digital loan products, including personal loans with 2-minute disbursement via mobile app DLite, pre-approved credit cards, and Amazon BNPL through Amazon India pay later services are all part of the bank’s digital offerings. Babu says, “At present, the product is offered via Amazon, along with Axio through a co-lending arrangement in a split of 80:20. Based on agreed parameters, KVB and Axio underwrite the customer and approve the in-principle eligible loan amount.” This loan amount is subject to successful completion of the KYC process. The underwriting is parameterised assessment of values that are configured in both lenders’ systems to arrive at the eligible loan amount, he adds. The bank has also created a robust core banking platform and multiple digital channels, based on API. It has built a digital end-to-end lending system with the support of Boston Consultancy Group in 2018, connecting multiple fintech partners in real-time using Aadhaar, PAN, and GST credentials. “We have more than 15 fintech partners that help us in getting quick turnaround of credit applications while processing the same digitally,” Babu says. FOCUS ON SKILLING KVB prioritises investments in training programmes, spanning a wide range of topics including banking products, customer service excellence, compliance with regulations such as KYC and AML, risk management, sales techniques and technological advancement. Training sessions are conducted through various channels as well. Babu says, “We also upskill our senior management through courses in transformative impact of AI in finance and reverse mentorship programmes where younger employees who are well-versed in emerging technologies, digital tools, and new-age solutions will mentor experienced executives and the executives on the other hand share their wealth of knowledge in strategy, decision-making and customer experience.” KVB’s priority of digital-first methods, an acute interest in skilling, and the ardour to rise up the ranks in a highly-competitive space makes the bank one to watch out for. @Riddhima765

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Karur Vysya Bank bets big on low-cost deposits to capture the retail and MSME goldmine

With a strategic push towards low-cost deposits, this small bank is betting on the lucrative retail and MSME segments