Tamil Nadu-based lender Karur Vysya Bank (KVB) is shifting its focus towards commercial lending to traders and micro, medium and small enterprises to reduce risk and boost returns. According to a senior executive of the bank, commercial lending to businesses is now the bank’s primary focus, with corporate lending accounting for just 21% of the portfolio compared to 40% five years prior. Under the bank’s new structure, loans exceeding INR25 crore (around $3m) are categorised as corporate loans, while loans under that amount are commercial. The move towards smaller, commercial loans comes as KVB seeks to offer its clients better interest rates and the ability to withstand losses in times of default.
Currently, KVB’s retail agriculture and MSME loans make up 78% of the bank’s loan book, while over 77% of its deposits are below INR1 crore. The top 20 depositors form just 5% of the total deposits. Despite the move towards smaller loans and the emphasis on commercial lending, KVB maintains it will be prepared to lend to corporate customers up to INR150 crore and more in partnership with other banks, depending on the situation.
Responding to a question about the bank’s ability to achieve scale with a more granular portfolio compared to its peers, KVB’s managing director and chief executive B Ramesh Babu said the bank needed to strike a balance, adding that steady growth is much preferable to overnight growth in topline. Babu suggested that KVB could achieve better profits from a “₹2 crore advance” compared to large corporate loans, noting that the bank’s retail advances grew by 16% last year.
