On behalf of the Board of Directors and the employees of the Bank it gives me greatpleasure to invite you all to the 99th Annual General Meeting of your Bank.
As we enter our 103rd year of operations on behalf of the Board of Directors I takethis opportunity to thank our shareholders for their continued support. Equallyimportantly I would like to express our sincere gratitude to our valued clients for theircontinued patronage. Their continued belief in the products and services has enabled us togrow profitably. I wish to thank and commend our employees - their dedication to the causehas enabled your Bank to build an enviable reputation for customer service and customercentricity.
Before I present the financial performance of the Bank during the year 2017-18 I wouldlike to make a brief mention of the following:
Global Economic Scenario
World Economic Outlook of IMF indicates a pickup in global economic output. Economicactivity in the US as well as in the Euro area continues to remain strong. Trade relateddisputes arising out of actions taken in the United States may impact growth inmerchandise trade. This particular aspect requires close watch as it is currentlydeveloping. The Indian economy having adjusted to significant structural reforms isexpected to gather steam. Oil prices and their consequent impact on India's CurrentAccount Deficit represent headwinds that our economy will undoubtedly weather.
Domestic Economic Scenario
2017-18 was a landmark year. During the year two key developments - the rollout ofGoods and Services Tax (GST) and the enactment of the Insolvency and Bankruptcy Code (IBC)took place. These are significant structural reforms that will aid faster growth of theeconomy in the future. In order to enhance growth several steps were taken by theGovernment. First recapitalisation of the public sector banks to enable them to supportthe economy better; second increased infrastructural spending to enhance infrastructurequality which has a knock on effect on demand and costs; third increased focus onagriculture so as to ensure rural growth etc. These and other actions have enabled Indiato leapfrog 30 places in the World Bank's Ease of Doing Business' ranking. From abanking perspective the development of Aadhar robust credit bureaus and near instantpayment / settlement systems has reduced friction in banking transactions. This in turnis expected to enable the economy to grow faster as we move forward.
Indian Banking Environment
Despite the above positive developments the Indian Banking sector continues to facechallenges. Asset quality and costs associated with asset quality are one area ofchallenge. The system as a
whole is burdened with high Non Performing Assets with the public sector banks beingparticularly impacted. Credit growth remained muted at 9.75% for the industry during2017-18 whereas the Gross NPA levels grew to double digits for many banks. While marketliquidity remained comfortable expectation of increased Governmental borrowing during theyear led to hardening of rates in the GOI Securities market which in turn impactedprofitability of banks. The need to ensure appropriate management of Operational Risk washighlighted by an instance in which a bank found itself straddled with large financialburden owing to the malfeasant action of a few of its employees. This in turn exposedthe industry to enhanced scrutiny by the media as well as by the regulators.
The success of the Insolvency & Bankruptcy Act to resolve stressed assets in areasonable period is a major positive for the industry. This will help in the restorationof bank balance sheets to health. As the Indian economy grows from strength to strengthfresh opportunities are expected to arise that will enable prudent banks to grow andprosper. The strengthening of the regulatory regime the resolution processes are keylandmarks in a new era of banking in India.
I now present to you the performance of your Bank - KVB - during FY 2017-18 :
During the year 2017-18 your Bank has crossed the total business milestone of Rs100000 crore. Credit growth has been robust at 11% and Gross Advances as on 31.03.2018stood at Rs 45973 crore. CD Ratio as on 31.03.2018 improved to 80.81% from 77.16% as on31.03.2017. Retail advances recorded a significant growth of more than 20% ( Rs 1280crore) during the year while the share of retail in the overall asset book improved by200 bps to 17% of gross advances. Within retail portfolio housing loan segment has grownby Rs 465 crore during the year.
Deposits especially the retail segment continued to grow with increased thrust onCASA growth. During the year a growth of 13% and 10% respectively has been recorded inthe Current and Savings segments. Your Bank's growth rate in transactional balancessignificantly outpaces that of the industry. CASA mix of your Bank has reached a level of29%. 63% of total term deposits were less than Rs 15 lakhs and only 8% of term depositsform value of Rs 5 crore or more indicating low dependence on wholesale deposits.
The operating profit of your Bank for the year 2017-18 reached a new high of Rs 1777crore registering a growth of 13%. This was made possible by tight expense controls thatensured your Bank managed its expense base efficiently in spite of the following:
a. Significant branch expansion;
b. Substantial investment in Digital Transformation - a technology initiative that willposition your Bank for the future;
c. Significant investments in migrating to the latest version of Core Banking. Thisagain will enable your Bank to take advantage of newer technologies to foster growth.
Net Interest Income improved by 11% ( Rs 224 crore) during the year. Even thoughsubdued securities market conditions yielded lesser securities trading income NonInterest Income of your
Bank has improved by 15% and reached a level of Rs 900 crore. Operating expenses haverisen by 11% during the year which was mainly on account of overall increase in staffexpenditure and other overheads.
Your Bank has shown an improved NIM by 16 bps to 3.86%. This was achieved by bringingdown the cost of funds by 61 bps during the year (and certain one time credits that helpedbuoy NIM). The fall in yield on funds by 49 bps offset the reduced cost and the spreadwent up by 12 bps to 3.22%.
The deteriorating asset quality issues faced by the industry also had an impact on yourBank as a result of which Gross NPA numbers grew considerably. This coupled with otherregulatory provisions requirements necessitated higher provisions towards the following:
a. Increased credit provisions for growth in GNPA (including provision for ageing ofNPAs);
b. Additional provisions as directed by RBI in respect of select accounts (which werereferred to NCLT for resolution); and
c. Continuation of provisions to amortise losses incurred in the sale of assets to ARC.
Thus credit related provisions escalated by 84% from Rs 648 crore for FY 2016-17 to Rs1190 crore in FY 2017-18. Whilst very substantial provisions have been created in theBalance Sheet Provision Coverage Ratio (PCR) remained virtually unchanged. The increasedprovision requirements impacted your Bank's Net Profit which was subdued at Rs 346 crore.
Your Bank was successful in completing the rights issue of shares during the year.117317101 shares of face value Rs 21- each was issued at a price of Rs 76/- per sharewhich has resulted in increase in share capital to Rs 145.33 crore. CRAR under Basel IIIthus improved to 14.43% as on 31.03.2018 as a result of increased Share Capital SharePremium and internal accruals.
During the year the pace of branch expansion continued by opening 79 branches takingthe overall presence to 790 branches across the country. 1795 ATMs 533 Cash Recyclers arealso deployed by your Bank at various centres.
Digital business thrust continued during the year and the PoS terminals deployedreaching 22873 at the end of the year. Your Bank had also piloted the introduction ofFASTag e-toll collection initiative and 12169 FASTags have been issued during the year.
Your Bank continues to be on the forefront of technology driven growth and iscurrently undertaking the following initiatives:
a. Migration to the latest version of Flexcube Core Banking platform - which willenable seamless electronic banking transactions across multiple channels in a securedenvironment through API enabled architecture. This will considerably enhance customerexperience whilst customers use your Bank's digital offerings;
b. Digital Transformation - This is a key initiative your Bank is undertaking. Thisunique initiative (arguably amongst the first in the industry) provides the followingadvantages:
i. Enables a highly automated underwriting process that relies on third party data(Credit Bureaus Banking Data and Tax related data amongst others);
ii. Enables credit decisions to be taken in minutes as against in days while tightlymanaging credit risk;
iii. Reduces paper and increases digitisation with concomitant benefits for accountmaintenance and portfolio management.
c. Continuing focus on MSME - specially the smaller MSMEs - This is the area of corestrength of your Bank. One of the work-streams in Digital Transformation is the automationand digitisation of Working Capital facilities. This initiative is partially operative andenables customers to renew their own facilities and offers our branches a simplifiedmechanism for account renewal. We expect this system to start accommodating New to Bank(NTB) customers in August.
Your Bank is enhancing its already robust risk management systems and ensuring due careis taken to adhere to the letter and spirit of the rules / regulations with respect tocorporate governance. It is our aim to emerge as a respected industry leader that ourcustomers are pleased to deal with and our regulators satisfied with the quality of oursystems and processes.
Awards and Accolades
Your Bank has received for the 9th successive year the Best Small Bank for Innovativeuse of Technology award from Institute for Development and Research in Banking Technology(IDBRT).
We were also adjudged the Best Small Bank Runner Up 2016 by Business World - PwC.
Your Bank was also awarded for the Most Disruptive Payments Technology - FASTag - atKamikaze Payments & Cards Summit.
NSDL has also declared your Bank as Runner Up for the Number of Demat Accounts openedin Bank category.
Once again I thank the shareholders and all stake-holders for their support andpatronage. I would also like to thank Reserve Bank of India for their guidance andsupport. The Bank will continue its quest of becoming the Smart Way to Bank' andcommits itself to the highest standards of service transparency and corporate governance.
With warm greetings P. R. Seshadri MD & CEO