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Karnataka Bank: A Profitable Transformation

Mahabaleshwara M.S., MD & CEO, Karnataka Bank, speaks about the bank’s transformation at the sidelines of SIBOS 2019:

Babu Nair: Karnataka Bank has achieved phenomenal growth in last one year, that too in a scenario where the entire industry is a reeling under NPA. You manage to grow at 4.5%. So, what is the secret behind this?
Mahabaleshwara M.S.: We are committed to the core banking activities. If you look at the business that we had canvassed during the last year, growth in business turnover was around 12% and advances grew around 18%. We have been focusing more credit, and as a result our CD ratio, which was hovering at around 63% for quite some time in the past, now has reached the level of around 80%. In the advances, we have been focusing more on the retail and MSME, where the growth is up to the expected level and delinquency is also less. As we have good number of branches in the rural, semi-urban and urban areas, we thought that that is the right type of business for us. Having recorded profit of `4.77 bn for FY 2018-19, which is the highest net profit we have recorded. The most important thing is the quality of assets. Never in the past has our GNPA crossed 5%. Now, it stands at 4.41% and as of March 2019, our Net NPA was 2.9%. We are continuing the same trend during the furrent financial year also. For Q1 of the current FY, we have recorded a net profit growth of around 46% and I’m optimistic that we will be able to deliver whatever business outlook that we had given for the current year.

Is the success because of concentration on retail, MSME and less troubled sectors?
We are not overexposed to any of the problem sectors. We don’t have any exposure to Jet Airways or Kingfisher. We have small exposure to the NBFCs. We are on our transformation journey with our transformation consultant BCG. This journey is already 18 months old now, and we have already started getting the benefits of this transformation. Our aim is to put ourselves in a more relevant and significant position among our peers. It has been a holistic effort, with technology at the center. I have used our own staff as the change agents. We have 8200+ staff they are the change agents of the transformation. What we have attempted to transformation in IT, HR, credit and all other aspects of banking. Another significant point of this is this is this has been an inclusive transformation. I myself have attended 115+ town hall meetings across India so as to reach out to my transformation change agents. With this, I have reached out to more 70% of my staff, the change is quite visible in all aspects of banking. Once this transformation initiatives are totally institutionalized, you will see the emerging of the new Karnataka Bank, which is very vibrant and responsible and of course driven by technology.

Is your strategic goal digital or phygital?
Phygital is exactly what is required. Our liability transactions are 80% digital and the remaining 20% are physical. Now, apart from the branch, I have many digital platforms including internet banking, mobile banking, POS. On the assets side also, whatever maybe data availability and technology, we cannot have 100% of sanctions being digital. So it has to be a refined blend of physical and digital.

Anything digital comes with the risk of security and compliance, and that has been the concern with many frauds taking place.
There what happens is how well the various systems are protected. As for transaction related frauds, those things are reasonably taken care of. We have different types of firewalls, and also, our data center is not outsourced – it is managed inhouse. This is one area where continuous vigilance is required.

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