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Our institutional holding is broad-based, not acquisition target any more: Srikrishnan H, Karnataka Bank

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Mangaluru-headquartered private lender Karnataka Bank bets big on technology to drive its business growth. Bank’s MD & CEO Srikrishnan H shares his views on the bank’s future in a chat with ET’s KR Balasubramanyam. Edited excerpts:

Karnataka Bank was started with the goal of responding to the needs of the agriculture sector. In the crowded space of present-day banking, how do you see the bank’s future?

Our bank adopted an agri- lending model on a large scale much before the regulations on priority sector lending kicked in. We will continue this legacy as we enter the next 100 years with continued focus on rural, agriculture, MSME and retail business. We are implementing technology-based deliveries in each of these verticals.Of late, your bank has been signing up with insurers and NBFCs to cross sell their products. How big is this opportunity?
Traditionally, branches have been the primary channel for originating business. Over a period, customers come to expect multiple financial products and services under one roof. This has led to banks partnering with others to offer third party products. We are looking to expand customer offerings through collaborations for co-lending, investments, insurance, and payment products. We believe that these partnerships will make up about a third of our business, going forward.

How comfortable are you with the capital at hand?
While we maintain a very healthy capital adequacy ratio, we have been judiciously churning tier-2 capital that was quite expensive. We have a follow-up round of tier-1 capital planned which will facilitate book-growth. Our NPA is largely from the historic book that has been adequately provided for, and our coverage ratio is high. We will, however, monitor and control any further slippages.

Does your bank have plans to enter any new business segment?
More than new business segments, we plan to continue strengthening each of the existing segments that we serve. We aim to do this through more products that will facilitate better cross-sell through analytics and data-driven acquisition models. This will help with customer stickiness, as well. Technology will play a big role as we increase our customer touchpoints digitally to handle larger volumes.Your bank has been moving rapidly towards digitization. That may leave staff in some areas redundant…
The world around us is moving rapidly and we must move faster to cope with the pace. Digitization need not result in redundancy. As we expand, we will make the fullest use of our workforce. Most of our internal processes are automated, and our experienced colleagues have adapted to modern practices. We would look at lateral hiring only for “specialist” positions.

Karnataka Bank is often speculated to be a take-over target…
Our fundamentals are very strong, and our financial metrics are showing improvement quarter on quarter. Investors are supporting us with additional capital that has resulted in broad basing our institutional holdings. We are on a good wicket on the balance sheet size, book quality, growth, and profitability. Digital adoption will accelerate our business acquisitions so that we are not, in any way, seen as a weak target.

In the previous cycle every bank was chasing corporate loans and got burnt badly. Now, everyone is going after retail, how will this end?
Retail, MSME and rural/ agri are granular in ticket-size. This provides a huge upside from a risk perspective as relying on larger ticket-size is prone to higher risks of failure. Depending on each bank’s funding position, it must be a judicious blend of both as relevant to each player.

One of the biggest challenges for industry is deposits. With someone like HDFC Bank in the market with possibly the highest rates, how would mid and small banks cope?
“Deposits with a relationship” has been our mantra over the past century. Even if there are players who are opportunistic, customers look beyond rates for placing their faith. While there may be some aberrations in the deposit market, rational thinking will be here to stay.

One of the things the regulator keeps bringing up is tech spending. Many banks have allocated resources, but don’t spend. Why is that?
Tech budgets are drawn at the beginning of the year. The experience at every bank has been lower spending due to two reasons: technology costs are always on a downward trend, and the estimates at the time of budgeting are always higher. Over a period, the teams will become more aware of this, and the gap would narrow down.

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