Money & Banking

Karnataka Bank’s ‘Conserve, Consolidate and Emerge Stronger’ mantra targets savings of around ₹100 cr: CEO

AJ Vinayak Mangaluru | Updated on August 28, 2020

Mahabaleshwara MS, MD and CEO of Karnataka Bank


Karnataka Bank, the 96-year-old old-generation player in the private sector, is on a ‘Conserve, Consolidate and Emerge Stronger’ mode to tackle the pandemic-related impact on the banking sector. In an interview with Business Line, Mahabaleshwara MS, Managing Director and CEO of the bank, touches upon various aspects of post-Covid banking. Excerpts:

What is the significance of the ‘Conserve, Consolidate and Emerge Stronger’ mantra of the bank that we are hearing quite often these days?

Karnataka Bank is a time-tested first-generation bank that hasseen many ups and downs in its journey of over 96 years, including a World War, pandemics, several recessions and freedom struggle – it is still growing stronger day by day on account of its financial acumen and professional management. The bank is known for its resilience and, hence, has been profitable ever since its inception.

As the pandemic has now affected almost all sectors, including the banking industry, and in view of certain uncertainties, our bank has decided that this is the time to be ‘cautious and conservative’ and, hence, we adopted the ‘Conserve, Consolidate and Emerge Stronger’ concept voluntarily.

We will be focussing more on conserving capital by various cost-reduction methods – both capital and revenue – and consolidate the business with ‘cautious and conservative’ approach to emerge stronger in the days to come by further strengthening our fundamentals.

How will you achieve this?

This involves a cautious approach in all aspects, be it lending or incurring expenditure, business expansion or resource allocation to aim at efficiency enhancement across verticals. Further, we have streamlined the concept of ‘Fund Transfer Pricing’ mechanism to analyse the profitability in each and every business decision / relation to ensure that it is remunerative and profitable.

Conservation of the capital funds is of paramount importance as capital is regarded as one of the costliest resources. In this regard, it may not be out of context to mention here that the RBI, too, has advised the banks not to declare further dividend till the regulator reviews the situation, mainly with an intention to conserve the precious capital.

Towards cost reduction, we have taken many proactive steps on various revenue and capital expenditure, optimum use of available resources, conducting virtual meetings using digital mode, both in liability as well as asset side of banking.

Opening of new branches, proposed for the current year, is temporarily halted. In line with our principle ‘less space, more business’, we are in the process of downsizing the branch premises / shifting some of our branches, wherever feasible, to ensure optimum use of the space, thus reducing the rental cost.

In fact, in response to my call, there was a splendid response from all my colleagues across the cadre suggesting various measures to curtail expenditure, and I have constituted a committee to look into these suggestions for its effective implementation. Hence, cost reduction measures are inclusive in nature and by involving staff members, we have adopted ‘bottom up’ approach and is yielding very encouraging results.

I am happy to mention that as a morale booster, our directors on the board also have volunteered to slash their sitting fees between 20 per cent and 29 per cent for the current year. To lead from the front, I, too, have decided to forgo my ‘variable pay’ component of 2019-20 payable in 2020-21, and also to continue with my existing old car for one more year though it is eligible for replacement.

What amount is expected to be conserved under your cost reduction initiative?

All these cost-cutting measures have already started yielding the desired results as can be seen from our Q1 results. For Q1 of FY21, our cost-to-income ratio has reduced to 35.77 per cent from 50.32 per cent on y-o-y basis. This is a good sign, and we will continue this exercise going forward. Overall, we hope to save about ₹100 crore due to this exercise, which, we feel, is decent savings for the bank. Under these trying circumstances, every rupee saved is equal to a rupee earned.

Can you tell us about the percentage of your total loan book under Covid moratorium?

The Covid-19 pandemic is a special situation and to overcome its adverse effect on economy, such special measures are very much needed. The moratorium, which was applicable up to May 31, has been further extended by another three months by the RBI up to August 31. Accordingly, our bank has also offered these benefits to all needy eligible borrowers. A total of 51.15 per cent of total performing advances by value and 37.22 per cent by number of accounts have been covered under Covid-19 moratorium till June 30. The highest percentage of Covid-19 relief package was availed by MSMEs, followed by retail, agriculture and corporate sectors.

Do you see any spike in the number of defaults due to Covid in the quarters to come? How are you planning to handle this?

In the case of loans where moratorium facility is availed, EMI / instalment repayment will commence from September. The businesses are now resuming normalcy with the gradual relaxation in lockdowns and opening of all sectors. However, in a few hard-hit sectors such as tourism, transportation, education, hospitality and construction, a drastic change in the way of doing business may emerge post-Covid.

During the evolving period, the banking sector may face some spikes in those specific sectors. However, our exposure to these sectors is not significant and, hence, we do not foresee any major spike in stress. Nonetheless, as the uncertainty is likely to continue, the bank is continuously reviewing and stress-testing its moratorium portfolio and is in constant touch with the borrowers for taking all required steps to ensure smooth transition post-Covid to ensure that debt servicing is not hampered.

Published on August 28, 2020

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