We require national consensus on loan waivers: Karnataka Bank MD Mahabaleshwara

Karnataka Bank will turn 100 in six years. The Mangaluru-headquartered private sector bank has roped in Boston Consulting Group (BCG) to help it pull off an ambitious transformation plan. After the bank reported record quarterly profits in July, a pleased MD and CEO, Mahabaleshwara MS (58), discussed with KR Balasubramanyam the bank’s planned transformation, the issue of loan waivers, and challenges and opportunities for small and medium banks. Edited excerpts:

What is your stand on loan waiver schemes as Karnataka has just had one?

As a banker, I would love to see agriculture become a viable economic activity. Apart from market intervention schemes such as MSP, we need to create a robust marketing mechanism. We need to deploy technology to help farmers discover better prices for their produce.

As for loan waivers, I think state governments should come together, deliberate and arrive at a national consensus. Without that, expecting a bank to pursue a state-specific policy may not be prudent as banks are national entities and cannot have different policies for different states.

With challenges increasing and models changing, is it not the time for banks to look at consolidation prospects to become competitive?

Consolidation has been a continuous process. In the recent past, we have seen the consolidation of associates of SBI. Since many banks have been put under prompt corrective action (PCA) of RBI, consolidation of PSU banks is also not ruled out. Under these circumstances, financially strong banks will stand to gain. We have also, in the 1970s, acquired three Karnatakabased banks and grown.

In the current scenario, what are the challenges and opportunities for small and medium banks such as yours?
The first challenge is regarding capital augmentation. We have to go on tapping the market unlike in the case of PSU banks, which are capitalised by the government. The second challenge pertains to upgradation of information technology (IT) infrastructure. We need to continuously upgrade because of the threat of technology quickly becoming obsolete.

As for opportunities, the first one is growth opportunities, which in my opinion are abundant in a growing economy such as ours. There is a sea of opportunities to integrate conventional banking with IT, and offer IT-enabled products to our customers. Hence, my focus is to increase earning and reduce stress.

We hear you are investing heavily in technology…
IT is at the centre of our bank’s transformation into the next era of banking. We are in the process of creating a robust IT infrastructure. We will have a digital centre of excellence in Bengaluru in the next few months. All IT-related ideas, user teams, IT development team, risk management team, compliance team, etc., will sit together and come out with new products for each customer segment.

We will introduce a sort of new customer journey experience. When this digital centre of excellence starts rolling out new products, our bank should be able to give credit sanction within 20 minutes for some credit proposals such as housing, vehicle, MSME, etc., which now takes about a week. This is how we plan to scale up.

We are also rolling out a new system to recognise employee performance and give rewards. We have already cleared an ESOP programme for our staffers. We are also coming up with digi branches. While we already have e-lobbies, they are attached to our bank branches. The digi branches, on the other hand, will be independent, exclusive and 24×7 units. We hope to start our first digi branch in Bengaluru in the next two to three months.

How different will your bank be by its centenary year?

By 2024, when we complete 100 years, we would like to emerge as a big, strong and vibrant bank. To reposition our bank as a relevant and significant entity, we have tied up with BCG. We have plans to make Karnataka Bank, the bank of the future, a nimble bank. What we plan to achieve is a total and inclusive transformation. Some of the major interventional areas in this direction include credit, human resources, information technology, efficiency enhancement, and value creation for stake-holders. In each of these areas, we have already finalised the action plan.

How are you approaching different segments?

In terms of credit, for example, we have already revamped our entire housing loan and MSME delivery channels. Earlier, these loan deliveries were branch manager-centric. In the revamped system, we will have separate teams for sales, processing and disbursement. Branch heads and staff will act as lead generators. In addition, we have tied up with direct selling agents (DSAs), dealers, builders, and others to sell loans. Even online sourcing of proposals is picking up.

In effect, we are moving from one man-centered delivery to multi-modal delivery of credit. This will leave us with a potential to grow our loan-book size three times, especially in housing and MSME loans.

We have integrated many aspects into our IT system to help our teams in areas such as selection of borrowers to assessment of right amount of loan to be sanctioned. Our IT system will have factors such as CIBIL score, past record of the customer with our bank, and his or her IT returns. Apart from this, we have a team to gather market intelligence, and do field-level due diligence for effective screening of customers.

And with regard to collecting dues from borrowers…

We have revamped our collection mechanism to prevent further slippages in respect of loans under stress, and to improve health of the asset by recovering dues on or before due date. In spite of the best efforts, if anything slips to stress category, then that will trigger soft collection as well as hard collection measures. With these changes, we are preparing ourselves for the new era of banking, the RBI is working towards. We expect IndAS, as it is called, to begin by April 1, 2019. I am happy to tell you we are one of the few banks that is IndAS-ready.


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