Progressing towards a new growth paradigm
Before discussing our performance for the year I would like to wish all of you andyour family the best of health and safety. We live in times where the world is grapplingwith an unprecedented health crisis. The COVID-19 pandemic has affected not just our livesbut also the way in which we work posing several challenges to our healthcare andfinancial ecosystems alike. However the crisis has also ended up opening new frontiers ofgrowth with lessons for us all.
As I took to writing this letter aimed at bringing forth the highlights and salientfeatures of our healthy performance for FY 2019-20 my thoughts kept going to one placeonly: our strong relationships in the market and the drive for results demonstrated by ourpeople.
I believe we have acted with foresight and agility which are our key strengths in viewof the current macroeconomic conditions facing us. We continue to interact with ourdepositors borrowers various service providers and other stakeholders including ouremployees in order to ensure that our services remain uninterrupted.
This has also helped us to identify opportunities for value creation.
With this background I would revisit the year under review.
REVIEWING THE MACROECONOMIC SCENARIO
The Indian economy though dealing with its own issues around slowing consumptiondemand rising inflation weak private sector capex was still among the fastest growinglarge economies globally. However by March 2020 the pandemic had arrived. The countrywent into a nation-wide lockdown from March 24 2020. Owing to all these pressures thecountry's GDP grew at a decade-low level of 4.2% in FY 2019-20. The government hasannounced a slew of measures to provide relief to small and medium enterprises and torevive the economy.
There is a silver lining however.
We are witnessing a bumper harvest; this coupled with increased maximum selling pricesfor major food crops and oil seeds holds the promise of agriculture growth. Further asglobal MNCs consider diversifying their manufacturing operations outside China Indiacould emerge as a preferred destination given the low corporate tax rate skilledpopulation relatively low wages and a large domestic market. A good monsoon weakeninginflation falling crude oil prices and revival in consumption will augur well for theeconomy.
A MIXED YEAR FOR THE BANKING SECTOR
India's banking sector witnessed a credit growth of ~6% during FY 2019-20 (as against13% in FY 2018-19) with the retail segment continuing to lead from the front andcorporate segment remaining under pressure. Asset quality pressures remained elevatedduring the year amid rising macroeconomic challenges. Further the NBFC sector's woescontinued with big names undergoing resolution process under the Insolvency and BankruptcyCode (IBC). With a large private sector bank caught in crisis the sector has come underincreased scrutiny.
The Government of India as well as the Reserve Bank of India have taken severalmeasures to support the economy and the banking sector. This includes the grant ofmoratorium on payment of interest and / or instalments by the borrowers GuaranteedEmergency Credit Line to meet the additional credit needs of the business communitylowering risk weights for retail loans (excluding credit card loans) from 125% to 100% andensuring transmission of lower policy rates to the end borrowers among others.
Going forward the demand for credit and credit quality both could drop as consumptiondemand continues to weaken. In this scenario banks are likely to adopt a cautious stanceon incremental lending and significantly step up their focus on asset quality.
However the agriculture & allied industries as well as the MSMEs will needshort-term and long-term credit and provide growth opportunities for banks and NBFCs.
KVB PUTS UP A RESILIENT PERFORMANCE
Despite the challenges we have been facing we have recorded a resilient performance inthe year. Healthy growth in the retail advances along with a steady loan book in theagriculture segment has helped offset the impact of a degrowth in the corporate credit.While our net interest income remained largely unchanged strong growth in non-interestincome (on the back of good treasury performance) delivered overall profitability.
A key highlight of our performance was the improvement in asset quality ratios - GrossNPA and Net NpA which contracted versus the levels recorded in FY 2018-19. Our constantfocus on enhancing our underwriting practices adopting superior risk appraisal processesand pushing recoveries have paid off well.
The most interesting and rather an important achievement during the year according tome is growing
Our N EO project is playing a prominent role in driving branchless growth.
our Provision Coverage (PCR) and Capital Adequacy Ratio (CAR). We surpassed our targetPCR to reach 68.90% (from 56.86% in FY 2018-19) and improved our CAR to 17.17% as against16.00% in FY 2018-19. I am glad to note that these ratios have firmed up further during Q1of the current fiscal.
MOVING FORWARD WITH RENEWED ZEAL
The year gone by has strengthened our resolve to improve our services and offerings forour valued customers. I am happy to share with you that we are the first bank in thecountry to disburse the Emergency Credit Line Guarantee Scheme (ECLGS) loans to MSMEs inthe post lockdown scenario. We continue to be liberal in providing temporary enhancementsin working capital helping our customers to tide over these tough times.
In my speech at the AGM last year
I had highlighted the future of digital banking. I take pride in saying that KVB isamong the early birds to pursue digital transformation especially in lending and ourdigital stance is vindicated in a post-pandemic world.
It lends us distinct strengths as we work to expand our digital offerings providingcustomers with a seamless banking experience and driving efficiency across all ourbusiness functions. In this regard our NEO project is playing a prominent role in drivingbranchless growth.
We have carried out a thorough stress testing of our exposures to various industriesand we will continue to pursue select opportunities in segments signifying relativelylower risks especially in the corporate and MSME sector. We are constantly monitoringslippages and are working to improve recoveries from NPA accounts.
Going forward we expect our new business segments such as bullion to bring in growthover the medium to long term. We are also focusing on growing our gold loan and vehicleloan portfolio through tie-ups.
The other important focus areas will be optimisation of expenses through variousmeasures including centralised branch operations digitalisation and more.
BUILDING ON OUR LEGACY OF TRUST
For us at KVB the values of being fair ethical and transparent in business are anabsolute non-negotiable.
This approach has helped us build time-tested trustworthy relationships with all ourstakeholders including customers employees business partners and the society at large.
We are thankful to our Board of Directors for their invaluable guidance and oversight.
While our Bank is all poised to set its sails to a new journey I am glad to welcomethree new members to our Board who are recognised among the top talents in theirrespective domains - our new MD & CEO Shri B Ramesh Babu whose long years of bankingexperience in SBI will add great value; Independent Directors on our Board Shri K G Mohanand Shri Dr HarshaVardhan who are both seasoned professionals highly respected for theircontributions in their fields of expertise.
To conclude I would like to extend my heartfelt gratitude to each and every Kayveebianfor their dedication to the organisation. Many of you exceeded the call of duty tocontribute to KVB's success and wellbeing - my thanks to you and your family. I would liketo thank the leadership team for demonstrating strong execution capabilities and ourshareholders our business partners customers and other stakeholders for their continuedsupport.
I am confident that together we will take KVB to greater heights.
N. S. Srinath