KBS Local Area Bank may become a small bank

Will decide following approval from shareholders, investors

Krishna Bhima Samruddhi (KBS) Local Area Bank, one of the four local area banks in the country, might opt to convert itself into a small bank subject to approval from its shareholders and investors.

The new norms by RBI permit conversion of local area banks into small banks if they comply with all legal and approval requirements from various authorities.

“The concept of small bank is interesting. From a strategic point of view it offers a lot of opportunity. But we will take a final decision after discussing the matter at the board level, and with our shareholders and investors,” Manmath Dalai, managing director and chief executive of KBS Local Area Bank, told Business Standard.

He added that KBS Local Area Bank has been in operation for over a decade now and hence is expected to meet RBI's 'fit and proper' criteria.

But the local area bank will need to raise additional capital as the banking regulator has prescribed Rs 100 crore as the minimum paid-up voting equity capital for small banks. KBS Local Area Bank's current capital base is Rs 30 crore. It operates in six districts, has a network of 14 branches and assets worth Rs 200 crore. The lender's customer deposit base is Rs 140 crore.

Dalai admits that raising fresh capital could pose a challenge. “In the financial world big is always beautiful. Capital is the biggest constraint for all local area banks,” he said.

The experience with local area banks in India has not been encouraging so far. Out of the six local area banks licensed, only four remain. The licence of one has been cancelled due to serious misrepresentation and concealment of facts at the time of granting of licence and another has been merged with a bank on account of bad governance and unfit management. Out of the remaining four, two have not made much progress while the remaining two have witnessed slow growth due to inadequacies of the small bank model.

Dalai, however, remains confident that KBS Local Area Bank will be able to accelerate its growth in the near future. “In the past couple of years, our growth has been in the range of 15-16 per cent. But we are now aiming for around 40 per cent growth in our business. We have five branches in the pipeline, which we will open soon. Also, our model is consistent with the government's agenda of financial inclusion, where there is a huge opportunity,” he said.