Karur Vysya Bank (KVB) is stepping up its focus on NRI deposits and small business lending while preparing for pressure on lending yields as competition for quality borrowers intensifies.
Speaking during the bank’s post-earnings conference call, Managing Director & CEO B. Ramesh Babu said the lender has begun seeing traction in customised lending products and expects prudent growth despite a challenging interest rate environment.
Betting on SMEs and NRI deposits
The bank said tailor-made lending products, including its GST surrogate loan for customers with limited financial data and the recently introduced Open Term Loan product, are witnessing encouraging customer response.
KVB has also expanded its Small Business Group Relationship Model to 77 branches, up from 75 earlier, with relationship managers focused on acquiring new-to-bank (NTB) customers and strengthening the lender’s presence in the MSME segment.
Another strategic priority is expanding business with Non-Resident Indians (NRIs).
Ramesh Babu said the Reserve Bank of India’s recent relaxation in FCNR(B) deposit interest rate ceilings has enabled the bank to offer more competitive rates, helping attract fresh NRI deposits and retain existing customers.
However, he noted that KVB is unable to offer leverage facilities available to some peers because it does not have an overseas presence or operations in GIFT City.
Margin pressure ahead
Despite reporting a net interest margin (NIM) of 4.26% in the first quarter—rising to 4.34% after adjusting for one-time interest recoveries—the bank expects margins to moderate as pricing competition intensifies.
The CEO said yields on advances could decline by around 10 basis points in the coming quarter as banks increasingly lower lending rates to acquire and retain customers.
“It is becoming necessary for us to compromise on margins not only to acquire fresh business but also to retain existing customers,” he said.
Even so, the bank reiterated its full-year NIM guidance of 3.7-3.8%, indicating confidence in maintaining profitability through disciplined balance sheet management.
Growth to moderate
KVB cautioned investors against extrapolating the strong first-quarter loan growth for the rest of FY27.
The lender said it had deliberately front-loaded business growth during the first quarter and expects expansion to moderate over the remainder of the financial year.
“Our first-quarter growth should not be considered an indicator for the full year’s growth at the same pace,” Ramesh Babu said.
The bank also reaffirmed its asset quality guidance, expecting gross non-performing assets (GNPA) to remain below 1.5%, net NPAs below 1%, and annual slippages below 1% of the loan book.
With deposit mobilisation becoming increasingly competitive following the RBI’s easing cycle, KVB said it will continue pursuing a dynamic pricing strategy while balancing term deposit growth with stronger CASA (Current Account Savings Account) mobilisation to maintain a healthy funding profile.