While the government is striving to increase the country’s exports, some recent events have put our exporters under stress – making access to easy finance more important than before. In an exclusive interaction with The Dollar Business, Mahabaleshwara M.S., MD & CEO of Karnataka Bank Ltd., talks about how his bank is assisting India’s exim community to weather the current, tough times.

Interview by Anishaa Kumar | November 2017 Issue | The Dollar Business

TDB: The last financial year wasn’t very good for the banking sector. How did Karnataka Bank perform? Do you see the things changing this year?

Mahabaleshwara M.S. (MMS): The Q4 of FY2017 was challenging not only for Karnataka Bank but for the entire Indian banking sector. Some of the major issues that impacted the banking sector were deteriorating asset quality, subdued demand for credit and slow recovery of bad loans. However, Q1 FY2018 results have been quite satisfactory. Karnataka Bank reported a net profit of Rs.133.85 crore in Q1 FY2018 compared to Rs.121.54 crore during Q1 FY2017 – a year-on-year (y-o-y) growth of 10.13%. Also, the operating profit of the bank has increased to Rs.309.70 crore in Q1 FY2018 from Rs.261.92 crore in Q1 FY2017. The Net Interest Income (NII) in the first quarter of this fiscal also increased 16.38% y-o-y. Even the business turnover touched Rs.94,711 crore as of June 30, 2017, registering a y-o-y growth of 9.56%. Increase in cash-deposit (CD) ratio is another positive story for the bank and, hence, it could be inferred that the fundamentals are getting stronger with time.

"I am hopeful that exports will bounce back during the current fiscal"

TDB: Karnataka Bank currently has 26 forex branches, across the country. Has the forex customer-base been growing?

MMS: Karnataka Bank always treats export credit as a national priority and puts all-round efforts to extend need-based export credit facilities to exporters at a competitive interest rate. The export numbers for FY2017 are really encouraging. I am hopeful that the export sector will bounce back and demonstrate an all-round performance during the current fiscal. In fact, for the current financial year, we are aiming for an export credit portfolio of Rs.2,500 crore.
Our forex customer-base has been growing at a fast pace over the last few years. In fact, in FY2017, we experienced a y-o-y increase of 6% in the number of customers who have routed forex transactions through our bank.

TDB: What specialised financial services does Karnataka Bank offer to India’s EXIM community? How are they different from others in the business?

MMS: Karnataka Bank offers a wide array of specialised services to the country’s foreign trade fraternity. Some of the most used services include pre-shipment credit (in both rupee and foreign currency), post-shipment credit (in both rupee and foreign currency), letter of credit, bank guarantee, buyers’ credit, forward contracts, overdraft facility, amongst others.

The trade community can claim many added-benefits from the services we offer. But, I must mention that competitive interest rates, competitive exchange rates, speedy handling of export and import transactions, and most importantly the service quality, makes us stand out above the rest. Also, time and again, we have been launching new initiatives for the community. For instance, in May 2017, we launched a new export credit product ‘KBL-Export Mitra’ at an attractive interest rate to serve our exporter clients better.

TDB: When it comes to inward and outward remittance services, what makes you stand out amongst your peers?

MMS: The inward and outward remittance facility includes the remittances towards exports and imports. It also includes remittances towards the transactions which are other than exports and imports. And as mentioned earlier, our services come with a lot of advantages such as low interest rate, best exchange rate, competitive service charges, speedy handling of export and import documents, arrangement of buyers’ credit, and centralised transactions processing to ensure that all Foreign Exchange Management Act (FEMA)/Reserved Bank of India (RBI) guidelines are complied with. However, I must point out again that it is our service quality that sets up apart.

TDB: Non-performing assets (NPAs) remain a major concern for Indian banking sector. In the last quarter of FY2017, Karnataka Bank also saw its gross NPAs rising to 4.21% from 3.44% during Q4 FY2016. What were the reasons behind this increase?

MMS: Yes, non-performing assets (NPAs) have definitely become a challenge for the banking sector. Some of the glaring reasons for deterioration in asset quality have been adverse market conditions, delay in getting clearances (mainly for infrastructure projects), management failure at major corporate borrowers, etc. Having said that, the bankers have various options to deal with such stressed assets – Joint Lenders Forum (JLF), Flexible Structuring, Scheme for Sustainable Structuring of Stressed Assets (S4A), Strategic Debt Restructuring (SDR) and recent guidelines on insolvency and bankruptcy code are a few to mention.

TDB: During second half of FY2017 banks faced increased scrutiny due to demonetisation. Is the worst over?

MMS: I agree that we had gone through some teething problems. But, at the moment, everything is stabilised and there are no issues either for the bank or the customers. We have been simultaneously educating the customers to use digital platforms for their transactions, which of course will help banks reduce transaction costs – and it has been so far successful. I have a good feeling that demonetisation will in the long run increase transparency in the banking sector.

TDB: NRI remittances to India dipped for the second consecutive year in FY2017. Were your operations also affected by the trend?

MMS: Well, Karnataka Bank has exhibited a stable performance with regards to NRI remittances and NRI business. In fact, in FY2017, the bank witnessed a 15% y-o-y growth in NRI deposits.

TDB: Can you throw some light on KBL Vision 2020, your five-year business plan that was unveiled in 2015?

MMS: Under KBL Vision 2020, the bank’s total business turnover is projected to increase in a progressive manner to touch Rs.1,80,000 crore with deposits of Rs.1,00,000 crore and advances of Rs.80,000 crore by March 2020 – from Rs.77,689 crore (deposits of Rs.46,009 crore and advances of Rs.31,680 crore) as of March 2015.

Deposits and advances are projected to grow at a CAGR of 16.80% and 20.35%, respectively, during the five-year period. Under deposits, the bank will focus on increasing CASA deposits which are expected to constitute 27.40% of the total deposits by March 2020. And under advances, the focus will be on expansion of retail and mid corporate credit, which would constitute about 70% of the total advances by March 2020.

TDB: You have recently taken over as the MD & CEO of Karnataka Bank. What’s your vision for the future?

MMS: I want to continue the good work done by my predecessor. My priorities as the new MD & CEO of Karnataka Bank include credit expansion without losing sight of asset quality, efficiency enhancement in all spheres of banking and driving digital banking and value creation for all stakeholders.