Friday, September 9, 2016

How KVB Achieved 100 Years – The Inside Story

President of India Pranab Mukherjee, was the Chief Guest in a function today at Chennai to mark Karur Vysya Bank (KVB) achieving the rare distinction of completing 100 years of uninterrupted operation under its original identity. While asset quality troubles continue to affect all banks in the country, some newer banks are finding the issue more challenging as this is the first major crisis they are going through. How KVB is coping with this issue is better as both the bank as well as its major loan customers have gone through even worst times like wars, famines, market crashes, and recessions. How a small-cap bank like KVB traversed these treacherous times is befitting to be a case study in leading business schools. It is not rare to find bank-customer relations that span 2 or 3 generations in KVB. Seasonal Magazine interacted with KVB’s Managing Director and Chief Executive Officer, K Venkataraman recently to understand the rare achievement of centenary among India’s private sector banks, and now brings this inside story.

Karur Vysya Bank is the first private sector lender in India to complete one hundred years of operation in its original identity, and the 11th Indian bank to achieve this feat but with 9 of them being public sector banks. 

KVB celebrated its Centenary in Chennai on Saturday, 10th September 2016. The Honourable President of India, Pranab Mukherjee, was the Chief Guest of the function to mark this rare achievement. The Honourable Governor of Maharashtra & Tamil Nadu, Chennamaneni Vidyasagar Rao, was the Guest of Honour.

Karur Vysya Bank's core philosophies of nurturing its customers through times, thick and thin, is what has earned it respect among customers and peers, through its 100 years of existence.

The bank is professionally managed and guided by its Board of Directors drawn from different fields with vision, experience, knowledge, and business acumen, led by its Managing Director & Chief Executive Officer, K Venkataraman who has been a veteran banker with SBI earlier, and B Swaminathan as Non-Executive Chairman.

Rather than rest on its laurels, CEO Venkataraman is exhorting Team KVB to get ready for its next 100 years, by continuing with its commitment to provide the best of products and services to its customers through in-branch experience of the highest quality and digital services that are simple, secure, and convenient.

Stretching limits:

The great soul who said that “the difference between what we do and what we are capable of doing would suffice to solve more of world’s problems,” is none other than Mahatma itself. Like most other quotes from Gandhi, the message is striking for its optimum balance between superlative vision and terseness at its best.

60 years after Gandhi left this world, another great soul from this soil, thought it befit to re-quote Gandhi while describing the work of a small bank. This is what Dr. APJ Abdul Kalam, Chief Guest at the Founders’ Day celebration of this bank, said around ten years back - “I would like to quote Mahatma Gandhi who had said the difference between what we do and what we are capable of doing would suffice to solve more of world’s problems. This has been proved by Karur Vysya Bank by rising to the occasion, facing challenges, and coming out gloriously from every situation.”

If one thing that will remain undisputed about Kalam forever is that he never speaks without understanding, never opines without studying. When he is invited for any event or a speech, that is how he ends up mesmerizing the audience as well as the hosts. More than that, when Kalam says something the world notices it as something substantial.

What made Dr. Kalam say this about Karur Vysya Bank back then? That is a long story, and before that should be mentioned one cardinal point about KVB and its Centenary.

A rare feat in India:

Not many banks in India have completed one hundred years of existence. Of the 10 banks that have completed a century, the majority are public sector banks, and their achievement is overshadowed by their conversion into nationalized banks some decades back, which gave them the strongest promoter in the country – the Government of India.

The few private sector banks that have completed one hundred years or nearly a century, on the other hand, have benefited from significant mergers or acquisitions and resultant changes in corporate identities. 

This is where Karur Vysya Bank completing a century comes across as more than impressive.  The private sector bank was founded in 1916 by two Karur based visionaries MA Venkatarama Chettiar and Athi Krishna Chettiar, to encourage savings habit among the local population and to provide financial assistance to traders and agriculturists in the region. While staying true to its roots, the bank had also embraced and improved upon all the advancements in the banking sector, and thus was able to complete 100 years in its original identity.

Not an easy feat, when one comes to realize that commercial banking in India is only 200 years old. Forget banking or commercial banking, there are barely 20 companies in India that have completed 100 years; 16 to be precise.

The most difficult century:

Now, coming back to why Dr. Kalam was so impressed with KVB’s achievements through the decades.

1916 to 2016 was by no means easy to survive for most businesses, forget banks. When KVB started its life, World War I was raging on, drawing even Indian soldiers serving the British army, into action. In 1929, Wall Street would crash starting the Great Depression across the world, for the next 10 years.

But by the time the world started coming out of the Great Depression, it was time for World War II which began in our neighbourhood with the Japanese invasion of China in 1937 and Nazi invasion of Poland in 1939. For the next 6 years, the greatest war the world has ever seen would rage on across continents and nations, pulling India and its soldiers too into the picture, and postponing Indian Independence for nearly another decade.

Soon after World War II and Indian Independence, it was time for reconstructing India, with the country having only a handful of banks. Karur Vysya Bank too played its part in all those years, supporting the local economy of Karur and neighbouring districts effectively.

While India’s reconstruction was on in full swing over the next few decades, India would also be drawn into three wars with Pakistan and one with China, not to mention the Emergency period, Sikh terrorism in Punjab, and finally Iraq’s invasion of Kuwait and the first Gulf War that resulted in India’s infamous Balance of Payments crisis in late 80s and early 90s.

How a small cap bank like KVB traversed these treacherous times will one day end up as a case study in leading business schools in India and abroad. Three factors have been outstanding in Karur Vysya Bank’s performance through these 100 years. Firstly, it never breached depositor confidence. Secondly, it never failed to support its lenders.

Focus on sustainability:

However, the third one is the most impressive, which is that KVB has always been profitable, and that it has always shared profits to its shareholders as dividends, through these one hundred years. Given how many banks have not even survived 50 years to tell their story even, this focus on profitability or sustainability is what has helped KVB to beat all odds.

Generating profits and sharing it equitably has happened in KVB when there was a large promoter group in the bank, and also when later day regulations limited promoter group holdings in all private sector banks.

Even in these troubled times for banks due to asset quality concerns, KVB's core metrics are healthy with its FY’16 Net Interest Margin at 3.08%, Net Profit Margin at 10.42%, Return on Assets at 1%, and Return on Equity at 12.41%.

Transforming changes into opportunities:

All through the difficult decades and their challenges, there were also significant happenings in the country that proved pivotal for Karur Vysya Bank’s growth. While continuous wars and food imports led to the Green Revolution and White Revolution in India, focus on promotion of employment-intensive sectors like textiles and automotive, resulted in these sectors booming in various pockets across the country, of which one was Tamilnadu’s central region, in and around Karur.

That is how Karur District as well as its neighbouring ones like Namakkal in the North, Dindigul in the South, Tiruchirapalli in the East, and Erode & Tiruppur Districts on its West became thriving hubs for textiles, automotive, and agri based businesses including thousands of supportive SME units in these sectors.

Karur Vysya Bank was also quick and open-hearted to embrace all emerging opportunities in the Indian economy. When the Balance of Payments crisis led to the inevitable Economic Liberalization of the 90s, KVB shifted gears and used all opportunities to spread its wings across geographies, sectors, and products.

A track-record in wealth creation and sharing:

That is how KVB stock became a darling of the bourses since 2002, appreciating by over 28 times during the past 14 years. Its current dividend yield is robust at nearly 3%, and it has given 3 bonus issues and 3 rights issues in the past, making the current yearly dividend payout to original investors, thrice of their original investments in 2002. That is, even if they had not participated in any of the 3 rights issues.

No wonder then that institutional investors, both FII and DII, both mutual funds and insurance firms, and both equity funds and venture capital funds, have made a beeline for the stock during the last decade.

KVB has a list of distinguished institutional investors - Franklin Templeton Mutual Fund, Acacia Partners, Saif Advisors, Warhol, Sundaram Mutual Fund, HDFC Mutual Fund, Birla Sun Life, ICICI Prudential, Unit Trust of India, TVS Shriram Growth Fund, HDFC Standard Life Insurance, and India's most successful celebrity investor, Rakesh Jhunjhunwala.

7 years transformational journey:

Even as Karur Vysya Bank carries with it a tradition of 100 years, the Bank has, over the years, been adapting itself to meet the challenges of the changing scenario in the banking industry. The Bank which remained mainly a regional player, undertook a massive transformational journey in the past seven years to culminate with its centenary year.

The plan christened as “Golden Vision” launched the Bank onto the next level with a pan India presence. Thus, while the bank with high standards of customer service as its strong selling point, continues to provide a personal touch in its services to its customers through a pan India  network of 683 branches, it is also in the forefront of offering alternate channels of banking through its network of 1691 ATMs and 386 Cash Deposit Machines. 

The bank also offers a host of other technological services such as Internet Banking, Mobile Banking, Immediate Payment Service, Electronic Fund Transfers, Point of Sale Machines and online payment services through a payment gateway.  The Bank also has a mobile app, ‘e-book’, which provides the customers, entire information about their bank account.

KVB also offers other financial products and services such as life and non-life insurance, health insurance products, mutual fund schemes, online trading in securities, and credit cards through tie-ups. The Bank also provides technology based cash management products such as collection and payment products. KVB also has multicurrency travel cards, gift cards, and reloadable pre-paid cards in its bouquet.

KVB has become a trusted brand in the country on the strength of its integrity, trustworthiness and fair customer practices, all built up assiduously over a period of 100 years.

The future plans:

On the occasion of KVB’s Centenary celebrations, K Venkataraman, MD & CEO of Karur Vysya Bank said, “We are extremely proud to be part of the team that is celebrating the centenary of the bank.  On this occasion, I would like to thank all our customers for the trust that they have reposed in us all these years, in many cases spread over 3 to 4 generations.  I would also like to thank our shareholders and other stakeholders who have realized the value of our company and remain invested for several years.  Of course, much of our growth could not have come without the hard work that our loyal employees have put in, to raise the bank to greater heights year after year.”

With banking landscape set to change completely in future, KVB, in its journey into the next one hundred years, is transforming itself on a two-pronged strategy of differentiated banking and going digital.

Going forward, the bank is positioning itself as a niche bank for the Small & Medium Enterprises sector, with customized package of products to cater to the special needs of each type of trade and industry in this sector. On the digital banking side KVB will provide complete solutions for retail as well as Small and Medium Enterprises, anchored on convenience.

Industry recognition:

KVB’s performance has been greatly appreciated time and again with several awards and accolades.  The Bank was recognized by IDRBT - Institute for Development and Research in Banking Technology for the seventh year in succession; this year, with two awards - Best Bank Among Small Banks for Digital Banking and Best Bank Among Small Banks for Managing IT Ecosystem.  This is the second time that the bank is receiving two awards in a year. 

The Bank has also won the FE Best Bank Award 2016 for Credit Quality and Dun & Bradstreet Award for Best Bank – Priority Sector Lending.

However, a commendable factor behind the success of KVB is that despite all product, service, and tech innovations, it has largely remained true to its roots of being a lender for Small & Medium Enterprises (SME).

In fact, the bank’s Managing Director & CEO, K Venkataraman, had boldly announced that KVB is being re-positioned as a specialized SME bank, while launching its Centenary Year celebrations around 12 months back.

Re-positioning as an SME bank:

The reasons are many. For one, despite it being a modern and full-fledged bank for decades now, one of the largest segments for KVB has always been the thriving SME sector in Tamilnadu and South India.

Its headquarter district of Karur itself is a powerhouse of Small & Medium Enterprises.  Located 370 kilometres southwest of Tamilnadu’s capital, Chennai, the district is known all over India and even abroad for its robust SMEs in various sectors, especially textiles, paper, and bus body works.

In textiles, its largest segment, the district is equally well-known for both power-loom and handloom textiles. It is a leader in India when it comes to home textiles, producing items like bed linens, kitchen linens, toilet linens, table linens, and wall hangings.

The textile industry in and around Karur is comprehensive in nature with allied industries like ginning & spinning mills, dyeing factories, weaving units, HDPE mono filament yarn units etc. The district is also a leader in India in the manufacture of mosquito fabrics and fishing nets.

The size and scope of textile and allied industries in Karur is known from the fact that there are tens of thousands of such units employing nearly 5 lakh people collectively. Karur is also home to one of India’s leading and most modern textile parks – the sprawling Karur Textile Park Ltd (KTPL).

When it comes to bus body building industries, Karur is unbeatable in South India with over 50 such companies, and the district is also noted for the presence of large industries like paper giant TNPL, PSU oil major BPCL-Karur, and Chettinad Cements.

The export focus of the district is also notable with Karur earning more than US$ 1 billion in foreign exchange every year.

Also, a major agricultural hub, Karur produces rice, cotton, sugarcane, oil seeds, coconut, banana, betel, mango etc, and is also a leading agri trading hub in Tamilnadu.

Karur Vysya Bank started its life and grew itself admirably over the last 100 years by primarily serving the tens of thousands of SMEs in these diverse manufacturing and trading sectors.

Spreading its wings:

But the reach of KVB to SMEs was never restricted to Karur District. In fact, its steady growth over the decades was due to the bank replicating its SME edge in other SME dense districts of Tamilnadu like Chennai, Coimbatore, Trichy, Madurai, and Salem.

Over and above this SME banking leadership in Tamilnadu, the bank from long back itself spread its wings to the SME hubs of neighbouring states. Notable among these operations are in Bangalore, Hyderabad, Vijayawada, Visakhapatnam, & Ernakulam.

In recent decades, KVB has also strengthened its presence outside of South India. In such forays also, it was keener on establishing its presence in large SME centres like Mumbai, Delhi, Kolkata, Ahmedabad etc.

Battle with NPAs:

When the NPA crisis emerged in India post the global financial crisis of 2008-09, SME industries across the country were affected, and SME banking service providers like Karur Vysya Bank too were affected.

However, there was a subtle difference in the way KVB addressed this issue and how larger public and private banks attempted it. Karur Vysya Bank was more understanding of SME customers’ issues, and wherever there were genuine problems, the bank was patient and supportive with handholding measures within RBI norms.

But wherever the bank sensed issues of willful defaults, KVB went in for aggressive recovery measures.

That this level of discernment - which only an SME specialist can offer - makes a world of difference is evident from Karur Vysya Bank’s last annual results. On sharply improving asset quality and falling provisions, KVB’s net profit for the past fiscal was up by 22.3%, which is commendable in a year when many of its peers were struggling.

New products for SMEs:

After burning their fingers in corporate finance during the past seven years, and with corporate credit uptake still not improving, almost all the bigger players in banking are starting to look at SMEs in a serious way.

But this is where Karur Vysya Bank has already made a head-start, and that is why CEO Venkataraman is pushing ahead with his highly sensible plan of re-positioning the bank as India’s first specialized SME bank.

And this has not been just a branding exercise or hollow promise. Under his expert guidance, KVB has unleashed 18 new products in the current fiscal, many of them catering exclusively to the SME segment.

These include KVB Commodity Plus, for dealers of pulses, cereals, spices, and edible oils; KVB Food & Agro Plus for units engaged in the processing of food and agro products; KVB Construction Plus, for dealers of construction materials; and KVB MSME Easy Loan for units with turnover of less than Rs. 1 crore engaged in manufacturing or service.

To help the corporates and SMEs to manage their funds and receivables more effectively, two products, viz. Cash Management Solution and Supply Chain Finance were also launched.

Leveraging technology:

Pushing the technology frontiers, the bank has also introduced E-Book, a Mobile App to help the customers themselves to manage their accounts. The GPRS enabled POS machine without printer for merchants and automatic passbook printer for the benefit of customers to update their passbook at any time have also been introduced.

Apart from such SME focused offerings, all other new products launched by KVB in the Centenary Year were aimed at bettering its retail business and includes a variety of cards, insurance schemes, and deposit plans.

This is also in sync with the bank’s larger vision of tapping the full potential of its geographical reach as SMEs and micro enterprises taken together continues to be one of the largest employers in the country.

Having completed one hundred years, Karur Vysya Bank is setting its eyes on the next 100. Towards this, MD & CEO K Venkataraman is assuring that KVB will continue with its commitment to providing the best of products and services to its customers through in-branch experience of the highest quality and digital services that are simple, secure, and convenient.

The bank continues to be professionally managed and guided by the Board of Directors drawn from different fields with vision, experience, knowledge, and business acumen.

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