Private-sector lender Karnataka Bank is focusing more on its retail business to fuel growth in 2011/12 as high interest rates may hit corporate demand for loans, its managing director told Reuters.
The Mangalore-based bank plans to grow its retail business to 60% of total from 55% now, with increased thrust on housing and vehicle loans and advances to small and medium enterprises and agriculture and allied businesses.
It also expects to double its gold loan business and catch up with peers by launching newer products like travel cards and gift cards to boost its retail presence. Recently, it tied up with Way2Wealth Brokers to offer online trading services.
"These are all attempts at increasing the CASA (current account savings account) balance. As there is a slowdown and interest rates are going up we may not get much advances under corporates," Managing Director P. Jayarama Bhat said over the telephone on Tuesday.
India's central bank has raised interest rates 10 times in just over a year to combat stubbornly high inflation and signalled more increases to come even as growth in Asia's third-largest economy is slowing down.
India's economy grew at its slowest annual pace in five quarters in January to March as rising interest rates crimped consumption and investment, suggesting the central bank could temper the pace of further tightening to tackle stubbornly high inflation.
"Corporates approaching the bank is not up to the expected levels. So we have to give thrust on retail credit."
Last week, Kerala-focussed Dhanlaxmi Bank
said it was eyeing forays into new segments such as retail gold sales and prepaid forex cards to boost profitability by focussing on non-interest income.
Karnataka Bank posted a 22.75% growth in net profit in the year-ended March to Rs 2.05 billion on a more than double growth in net interest income. Non-interest income fell to about 23% in the period.
The lender, which plans to expand its branch network to 500 this year from the current 483, expects a 25% increase in loan growth in FY12 on the back of a smaller base, while deposits are likely to grow 20%, Bhat said.
The Reserve Bank of India has forecast a 19% credit growth for banks in FY12, and has pegged deposit growth at 17%. Bankers are confident of meeting this forecast.
However, most lenders were concerned about weak margins this year as higher interest rates squeeze net interest income, prompting them to look at other sources of revenues.
Karnataka Bank expects to improve its net interest margin to 2.75-3.0% this year, higher than 2.15% in the previous year by passing on the cost increases to customers, Bhat added.
It also aims to bring down its net non-performing assets to less than 1 percent from 1.62% in FY11 by "intensive recovery efforts" and keeping limiting its exposure to high-risk sectors such as diamond exports and textiles.
Shares of the bank, valued at Rs 24.5 billion, closed down 0.8% at 129.40 rupees on Tuesday.