In April this year, Mahabaleshwara M S took charge as the new managing director and chief executive officer of 93-year old bank— Karnataka bank. Prior to becoming the chief of the bank, he was the chief general manager and was responsible of the departments of credit; planning and development; IT and MIS; treasury and accounts and HR and IR. He served the bank for over 32 years before becoming the MD and CEO of the bank.In one of his first interviews after taking over the office, Mahabaleshwara spoke to Free Press Journal about ‘Vision 2020’ and most importantly his plan for the bank.
Excerpts:
Under your leadership, what is Karnataka Bank’s growth plan in FY18?
Karnataka Bank has been able to earn an all-time record net profit of Rs 452.26 crore for the year ended March 31, 2017. For the financial year 2017-18, we have envisaged a business turnover of Rs 1, 10,000 crore (i.e. deposits of Rs 64,500 crore and advances of Rs 45,500 crore) with a growth rate of 17.35 per cent. The key priority areas identified for the current financial year are a) credit augmentation b) NPA (non-performing assets) and stressed assets management c) CASA (current and savings account ratio) deposits d) digital banking initiatives e) para banking activities. We have strategised a growth which shall help us to show still better numbers in FY 18.
The bank’s credit growth was muted. What could be your disbursement target in FY18?
When the industry has grown at around 5 per cent, our growth was almost 10 per cent. However with a more focused approach towards credit, we are aiming to double the growth during current year.
Your gross NPAs stood at 4.21 per cent while Net NPA stood at 2.64 per cent. Going forward, how do you expect asset quality to perform? Will recoveries outpace slippages?
Compared to the banking industry, it is well within the tolerance limit. However, we have our own set of standards. Hence in resolution of NPAs, our focus will be more on further reducing it. Initially, we have to aim to manage GNPA (gross NPAs) at around 4 per cent and NNPA (net NPA) at around 2 per cent and gradually improve it further. Hence, the focus areas will be minimising the slippages and tightening the recovery mechanism. Recent NPA Ordinance and resultant war on NPA at national level will set the tone for resolution of Corporate NPAs.
While your MSME portfolio accounts for 22 per cent of the loan book, it is a segment where nearly half of restructured advances became non-performing assets as of March 2017. By when do you expect to recover these loans?
The MSME portfolio of the bank stands at Rs 9,800 crore as on March 31, 2017, which is 26 per cent of the Gross Bank Credit (GBC) of the bank. In our bank the restructured advances under this sector is Rs 45 crore, which is just 0.12 per cent of the GBC or 0.46 per cent of the MSME portfolio, which shows we are far better placed as compared to the banking industry and as such there is no alarming situation in this sector. In view of this, we have identified this sector as focus sector for further growth.
What is your view on the government’s ordinance that empowers RBI to deal with bad loans more efficiently?
The ordinance will help the banks for resolution of NPAs in the banking industry. It authorises the Reserve Bank of India (RBI) to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default under the provisions of the Insolvency and Bankruptcy Code (IBC), 2016. It has also empowered RBI to issue necessary directions to banks for resolution of stressed assets. RBI has also been equipped with power to specify one or more authorities to advise banks for dealing with the problem of NPAs which is as per the ordinance, “have reached unacceptably high levels and urgent measures are required for their resolution”.
These measures will certainly help the banking industry to mitigate the NPAs and improve their financial health. It is a ‘health positive ‘for banking sector.
Deposits for the bank grew at robust 12.4 per cent Y-o-Y due to higher savings bank account growth. Will this continue to grow?
The CASA growth may moderate during current year. Our CASA share to total deposit has reached a new high of 29 per cent and it shall be our endeavour to maintain it at around 30 per cent in the years to come.
Do you see enough growth in the overall economy? Will it provide some fillip to the banking sector?
Yes, we see enough growth in the overall economy during the current financial year. The World Bank in its latest Global Economic Prospects projected India’s growth to 7.5 per cent in 2018 and 7.7 per cent in 2019. Similarly, Central Statistical Office of India has projected real GVA growth for 2017-18 at 7.3 per cent. The recent data indicate a rebound this year, with the easing of cash shortages and rising exports. The continuing remonetisation should enable a pick-up in discretionary consumer spending, especially in cash-intensive segments of the economy. Furthermore, the India Meteorological Department (IMD) re-affirmed its forecast of a normal and well-distributed south-west (June-September) monsoon, which augurs well for the agricultural outlook.
Definitely it provides some fillip to the banking sector, because the contribution of the banking industry to GDP is about 7.7 per cent. The reductions in banks’ lending rates post-demonetisation should support both consumption and investment demand of households and stress-free corporates. With implementation of RERA Act combined with recent decision of RBI’s Monetary Policy Committee to cut risk-weight provisions for home loan, housing sector will get the required boost. Hence, we are optimistic of the economy.
Karnataka Bank has denied acquisition plan in past. But, are there any inorganic moves in the offing?
You are aware that Karnataka Bank is financially strong with adequate capital. We are therefore committed to maintain our identity. However, the option of merger of other banks with Karnataka Bank is wide open. Having said that, I make it clear that there is no such plans in the near future.
What is your pace of branch expansion and how will it look over the next 1-2 years?
We are now in branch consolidation mode by focusing more on ‘business per branch’. Branches have also been sensitised regarding effective utilisation of the premises space by paying special attention on ‘Minimum Space Maximum Business’. However, we may reach 1,000 branches, 2,500 ATMs and 250 e-lobbies by the end of financial year 2019-2020, depending on the business opportunities.
Can you elaborate more on the ‘Vision 2020’ plan for the 93-year old bank? Are you on course to achieve a loan book of ` 80,000 crore?
‘Vision-2020’ is an aspirational journey to grow big, strong and vibrant. Accordingly, Karnataka bank has embarked upon a transformational journey and envisaged to reach a total business turnover of Rs 1, 80,000 crore by 2020 and to expand the customer base of 13 million from the present 8 million.
We know that task of achieving a loan book of Rs 80,000 crore as per the Vision 2020 is a challenge. But, we have tremendous faith in our team and we believe in team work. We have already started an ’Economic and Statistical Research Cell’ which provides useful inputs on sun rise/sun set sectors, throws light on perceived risk, growth opportunities as well as the relative risk etc. Based on these inputs, which is on an on-going process, we will focus on credit expansion by keeping intact the asset quality as per our growth strategies.
