Karnataka Bank plans to enter unsecured lending, offer credit on UPI: CEO

This comes as a strategy to expand the Bank’s digital business and enhance the loan book, MD said.

Karnataka Bank plans to enter the unsecured lending business and is currently working on a pilot to extend credit on the unified payments interface (UPI), the bank’s Managing Director and Chief Executive Officer (MD and CEO) Srikrishnan H told Moneycontrol.

“For the first time, we are venturing  into the unsecured space. The flagship product here will be digital credit on UPI, which we will be launching very soon through a strategic partnership. This replaces the need for plastic and we are ready with our technology platform and integrations,” he said.

The Mangaluru-based bank is also planning to expand its co-lending business and is onboarding a fifth co-lending partner. This is part of the bank's strategy to expand its digital business and enhance the loan book, Srikrishnan added.

On the deposit and credit growth front, he said the bank is comfortably placed and can afford to grow its advances more than deposits as its credit-deposit (CD) ratio is 75.3 percent at present.

Edited excerpts from the interaction:

What are your thoughts on your Q1FY25 numbers?

We have done quite well in terms of the  overall business  and growth in advances and deposits. Our record turnover of over Rs 1,75,000 crore includes advances of Rs 75,000 crore, which is a milestone in the history of the bank. We expect advances to grow at 19-20 percent this fiscal year as our CD ratio is 75.33 percent at present, which gives us some headroom in terms of liquidity.

All banks have faced challenges on the deposits front in the last few quarters, as there has been flight of deposits from the banking system into other investment instruments such as mutual funds, and so on.

We reported strong growth in the retail and MSME business,  and have decided to focus on direct corporate lending as well. We are strengthening our corporate business by putting the required teams in place in  major locations. They will focus on corporate finance in these locations.

Your NIMs and asset quality were under pressure this quarter…

Like the rest of the  industry,  our NIMs (net interest margins) have also been under pressure. We reported a NIM of 3.54 percent this quarter, in-line with our guidance — which was between 3.5 to 3.7 percent. If our retail business grows, especially in larger retail assets, we believe we should be able hold on to our NIM.

Our gross NPA  as a percentage of gross advances has been steady, and not swung upwards. This is good news because that will help us reduce our NPAs as we grow the business. Our net NPA additions during the quarter was about Rs 90 crore.

How are you looking at the unsecured space? Do you plan to enter the segment?

For the first time, we are venturing into the unsecured space. The flagship product here will be digital credit on UPI, which we will be launching very soon through a strategic partnership. This replaces the need for plastic and we are ready with our technology platform and integrations.

We are carrying out a small pilot to test the waters. Once we are ready, we will go to the market and rollout other products in this space.

It's been more than a year since you took charge at the bank. How do you plan to grow the bank digitally?

We have made some progress on the deposits and credit front, like savings accounts and personal loans, and have also seen some success in acquiring new customers.

As we build out digital products, we are exploring how we can integrate our technology platforms with the digital ecosystems already in place, like CBDC (central bank digital currency) and ONDC (open network for digital commerce). We have four co-lending partnerships and will add the fifth one soon.

The RBI Governor recently said that banks have to step up efforts against mule accounts. What is your take on this?

We have been focusing a lot on KYC and  no fraud has been reported in our bank.  All our accounts have been opened with  proper KYC. Nonetheless, we are conscious of this and have proper systems in place for monitoring transaction velocity and reporting as required.