Thursday, September 06, 2012

The pangs of indecision?

Ranked amongst the world’s top 1000 banks in 2009 by The Banker, London, Karur Vysya Bank is perhaps the least written about banks in India. But with an obscenely mammoth Rs.300 billion plus business being churned out an NPA ratio which is amongst the lowest across India, the bank can just not be ignored. B&E investigates what’s up with the bank?
 
Well, that’s actually the full story. Less written, lesser known, and mostly growing by organically propelled momentum, the bank has never been a case study to be analysed in a similar platform as the State Banks/HDFCs/ICICIs et al. Yet, not only has the bank conjured up obscenely huge margins (last three years’ aggregate profits were close to Rs.780 crores), the bank has also slowly but surely crossed the oceanic stamp of being just another South Indian bank to becoming a national player. With Rs.330 billion of total business, whatever you do, you simply cannot ignore this bank which, unbelievably, is a 96 year old institution! B&E jumped headlong into the issue to find out what gives in this erstwhile heavily tradition driven institution, whose unique jumpstarts are getting evidently more regular than competitors can handle. First the flat financial situation. Karur Vysya Bank (or KVB, if we may) has churned up total deposits at Rs. 193 billion and total advances at Rs. 137 billion for FY 09-10. Apparently, KVB is the first private sector Tamilnadu bank that has gone beyond the Rs.300 billion gross business mark. Creditably, it has a net interest margin at 3.23%, and of course, the current 350 branches. We’re told by the top management that not only are they trying to increase this to 800 branches by 2015, but also achieve a business figure of Rs.1,250 billion by the same period. In other words, an all India presence that challenges the current national banking leaders. The question is pretty simple: can they really make the jump or is this a simple case of an over-targeted strategic intent?
 
the marketing paradigm

They say to understand a man’s character, look at his shoes. We say to understand a bank’s character, look at its bad loan ratio. Applaudably, the battle has been won by KVB before it even starts. If ICICI Bank had a bad loan ratio of 5.14% for 2009, KVB has the same at an electrifying 1.67%. And don’t even think about reaching the holster for shooting the NPA ratio bullet. At 0.23% NPA ratio for 2009, it’s quite clear that Karur Vysya is miles ahead of being a simple push over for competitors. “In FY’11, we will touch Rs.420 billion and Rs. 500 billion by FY’12. The bank is targeting a 28% surge in both credit and deposits”, says Group Chairman of the bank, P. T. Kuppuswamy, to B&E, adding that the CASA (current and savings account) component is likely to go up by 2% to 26%. Apart from this, during Q1 2010-11, Karur Vysya Bank has recorded a 16.57% rise in interest on advances of Rs.3.71 billion, up from Rs.3.18 billion that was registered during the corresponding quarter last fiscal. Before you think the eulogies are piling up more than normal, stop for a moment and imagine the scenario that KVB achieved much of what it did during the economic slowdown.

So where does the most unkindest cut of KVB actually exist? The answer is quite simple: just below the scratchable surface. It’s a straightforward fact that while South India depends on age-old paradigms for business development (when was the last time you read a Hindustan Times in Chennai?), the rules that drive business in most of the remaining high net worth parts of India are pretty massively different; and KVB has not been exposed to much of this scarring world till now. Yes, they’ve made quite a massive and efficient machinery running down south – but to expect similar growth in a vagary driven and real-estate stricken Mumbai, for example, can never be reasonable. And the factor where KVB can and would take a massive hit is their marketing paradigm. In the current financial year, Karur Vysya Bank has applied to the Reserve Bank of India (RBI) for 70-100 new branch licences in 2011-12. With this move, the bank hopes to have 375 operational branches by the end of 2010. But till now, unless you’ve been a crazed stalker-fan of KVB, neither would a prospective customer be able to recall any of KVB’s advertisements, and the products don’t even make the alphabetical list of the feedback form – in other words, KVB suffers from dismal brand recall in almost all non-south geographies. But it’s not as if the bank doesn’t realise this – in fact, they’ve gone many steps into this issue. During the Jan-March 2010 quarter, KVB had commissioned one of the Big six consulting firms, Boston Consulting Group to prepare a growth road-map for its future. Currently, post the consulting recommendations (which primarily focused on advising the bank to improve its low-cost deposits and expand exposure to the small scale sector), the bank is apparently implementing interim changes to marketing strategies and organisational structure too. The difference in the bank’s marketing communication is quite evident, one should mention. While the age-old vision statement of the bank still starts with the dodgy “delight the customer continually” paraphrasing, one look at the bank’s print ads shows the suave and classy communication change (see first page snapshots). These ads are a far cry improvement from the cheesy recruitment ads the bank used to give – and still gives – which earlier were their only source of letting the public in South India know that they existed! 


Source : IIPM Editorial, 2012.
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