Karnataka Bank CEO details unsecured lending plans with new digital products

Karnataka Bank plans to venture into the unsecured lending space by launched UPI-based digital products.

Currently, about 90% of the bank’s overall loan book is collateral-based.

Srikrishnan H, MD and CEO of Karnataka Bank in an interview with CNBC-TV18.said the bank is strengthening the processes, technology and the collection mechanisms.

“There are a slew of products that we are launching, particularly in the digital space, particularly related to UPI, we will be launching a credit line on UPI soon followed by a few other products in the retail space, which will be our charter into the unsecured territory for the first time,” he said.

The bank has a very strong branch franchise with 940 branches, and is focusing on retail, term deposits as well as current account/savings accounts (CASA).

The bank reported an 8% increase in net profit to ₹400 crore for the June 2024 quarter.

This is the verbatim transcript of the interview.

Q: The loan growth that you’re talking about – 19% over the next couple of years. Where is it that you’re seeing the most amount of traction when it comes to demand for loans and where is it where the cell is a little too hard? We’re just trying to understand what are the higher-yielding assets for you, low-yielding assets for you, and better quality. How do you manage that mix over the next couple of years?

A: Our focus is on RAM which is retail, agri and market and this is going to continue. Over 50% of our accretion is all happening in this space. Our loan book is divided about a third or a little more than a third, with large corporates where we have said we will get out of the bulk opportunistic loans into direct-to-corporate lending. So we’re strengthening our corporate business, midsize corporate business with coverage teams and relationship teams across the country, at least for the main locations.

Our industrial finance branch, corporate finance branch and overseas branches are kicking in very well in the major locations. Last but not least, we believe that the growth will be more granular to the tune of about 50% plus, and towards larger ticket sizes for mid-sized corporates and so on. The yield is good from a retail perspective. Although there are several challenges, we are setting up our collection system, we are also completely revamping our credit processes in terms of turnaround times and we have plans to set up some very specific retail asset centres in major locations as we go forward.

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As far as the larger corporation is concerned, there is a lot of balance sheet lending. The good news about the bank is that about 90% of our overall loan book is still collateral-based, unsecured is a very limited portion and is only relevant to large corporates or PSU or some opportunistic corporate assets that were taken.

For the first time in the history of the bank, we would be getting into the unsecured space for which we’re strengthening both the processes, technology and the collection mechanisms. And we will get there, there are a slew of products that we are launching, particularly in the digital space, particularly related to UPI, we will be launching a credit line on UPI soon followed by a few other products in the retail space, which will be our charter into the unsecured territory for the first time.

Q: With all these things happening, one presumes that your cost-to-income ratio would increase. So what is your target cost-to-income ratio here, as you are expanding? And secondly, with all of this in the organic part of your mix? I mean, are you looking at some opportunities to maybe strengthen your capabilities, get books or maybe get merged into someone else with the kind of capabilities that you have right now?

A: So you asked me two questions. One is, in terms of the strengthening part related to our book and the overall processes, etc. Yes, there’s a lot of effort as we have raised adequate capital. So, that has created a lot of headroom as far as the overall infrastructural setup is required, as well as setting up large back offices and national back offices in Mangalore.

The second part is what you asked about the inorganic side – it is an opportunity that no bank would like to miss, so we will be looking at any such opportunity. Book growth is not our objective. If there is distribution and everything related to the overall infrastructural strength that we acquire, definitely we will be looking at it.

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To answer the last question – we looking at a merger. I think we are looking at acquiring rather than being merged. So, we are looking at some kind of acquisition, if at all when it comes, but I would not like to give any speculation here. So, just to reiterate this is something which is a normal process where we would be on the lookout for any such interesting opportunities.

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