We have continuously demonstrated that we follow rules and regulations, both in word and spirit: CEO of City Union Bank

Kumbakonam (Tamil Nadu)-headquartered old private sector lender City Union Bank (CUB) will be celebrating its 115 years of operations this Saturday. Incorporated in 1904, the bank stands out well compared with other small private banks, due to its well-managed business model. More than two-thirds its branches are in Tamil Nadu. CUB has seen a number of business cycles during the course of its existence but has managed to maintain its performance on a consistent basis. BusinessLine spoke to N Kamakodi, Managing Director and Chief Executive Officer of CUB on the eve of its Foundation Day celebrations. Edited excerpts:

There are only a handful of banks in the world that can boast of 115 years of continuous profitability and dividend declaration record. From inception to this year, every year the bank was able to generate profit and declare a dividend and it has been primarily due to customer service and conservatism. The bank has seen so many changes and turmoil – from World Wars to the freedom struggle, India-Pakistan war, India-China conflict and almost six to seven economic cycles. But, it stuck to the basics and did not get diverted or distracted. Though CUB may not be a large bank in the country, it has always remained an efficient and profitable bank taking care of customer needs and being happy with it.

This question comes every 10 or 15 years. Every institution will have its own opportunities and threats. I have completed 16 years with the bank. When I joined the bank, it was the time when the banking sector was opened up and many new licenses were issued. Even at that point in time, some of the old generation private sector banks like us decided that they will not be in a position to maintain their identity and got merged with larger banks. CUB understood that size wouldn’t matter as long as you understood the customer well, was able to provide value to them and run the institution properly with efficient and profitable metrics.

Some of the banks that decided to grow faster and tried to change course, I would not say they have all succeeded. For us, the market cap has grown over the last 15 years and much was value created for investors only in the last 15-20 years when competition intensified. Consistency, stability and trust are part of our overall conservatism. They are particularly very important for organisations that have a large legacy. So, more than just the size, efficiency and profitability determine the value that is created in an organisation for all stakeholders. So, the conservative approach was a conscious choice. We are not fully convinced that we will be able to increase the size at a faster rate without compromising on core values that our bank has been standing for over a century. We decided that this is the path and we are sticking to that. And no regrets on that.

It’s a misconception that we are may not be tech-savvy as we are 115 years old. Our technology platform and services are at par with the best in the industry. Over a period of time, more than 90 per cent of our transactions have moved out of branch channels to non-branch channels. Be it our internet or mobile banking, ATMs or cash machines — they take care of more than 90 per cent of operations. In terms of innovations too, we were the earliest ones to introduce robots. Our mobile banking app is one of the best and well-rated, both in terms of customer comfort and safety. We have been continuously taking steps to upgrade technology and make it at par with the industry benchmarks. There are adequate investments going into technology on a continuous basis.

We need to understand the reasoning behind the bulk of these regulations. First, the bank should be adequately capitalised. It should have sufficient capital to take care of any unexpected shocks, and hence, they prescribe norms. Second, in any country, regulators want to ensure that the institutions are run in a professional manner without compromising on the interest of all stakeholders. These two will be key to any regulations. Over a period of time, we have understood that a banking institution runs on the trust of all stakeholders — customers, government, investors, shareholders. We have continuously demonstrated that we follow rules and regulations, both in word and spirit. In terms of the capital, as I said earlier, we have always been conservative, in the sense that we have always maintained more than prescribed norms. Even in practice, most of our policies are much more stringent than prescribed rules. We don’t feel anything adverse because of that.

As a matter of practice and policy, we have always maintained our growth rate at 4-5 percentage points above the growth rate of the industry. This is what we have been doing for the past two to three decades and we have been reasonably successful. Our market share, which may be small, has doubled in the past 10-15 years. We are able to add value to all customers whom we are serving. It is not that we are not changing our strategy. But the change happens in a gradual and calibrated manner rather than doing some thing too quickly. Two decades ago, we were not strong in working capital financing. Later, SME and working capital financing became our bread winners. We will evaluate the opportunities available in the market. At the same time, the change will not be drastic, too big and too quick. There will be a calibrated evaluation of the changes that are required and we will be doing it on a continuous basis.

I don’t see any specific challenge for CUB. The entire banking industry will face multiple challenges. On one side, technological disruptions are happening, and on the other, customer preferences are changing. How am I going to add value continuously to the depositors who give me the raw material will be a key focus. Also, how to mix technology and human interface in an appropriate fashion so that we will be in a position to satisfy all customers. On the loan book side, we have to keep upgrading ourself to understand the changing dynamics as the pace at which businesses are coming and churning is too quick. We can’t rest on past laurels. We have to continuously evaluate our strengths and rededicate ourselves to the service of our customers.

If you take our executives in the top management cadre, their average experience in CUB itself is 25 years. They have grown with the bank and we also have the next set of people coming into the management cadre. Typically, we ensure that not less than 90 per cent of our top management is home-grown who are trained through our own ways, culture, and processes. We are conscious and sensitive about that.

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