Karur Vysya Bank (KVB)—A small private sector
bank with massive south India presence has
performed well in the last few years,
nevertheless, profitability declined in the year 2004-05
due to higher provisions for investment depreciation. If
we look at the quarterly results total income increased
to Rs.199.7 cr in September 2005 from Rs.173.3 cr in
June 2005. Low Tire-II capital, lower level of Net NPAs
and higher return on Assets imply that the bank has
good scope for growth in the near future.
If we look at the fundamental ratios of the bank, they
were at very good position compared to other old private
sector banks. Capital Adequacy Ratio (CAR) of the bank
was at 16.07% as on March 31, 2005, which was one of
best among old private sector banks’ pool (hereafter pool
only). Only SBI commercial and International Bank Ltd.,
(23.56%) and Tamilnad Mercantile Bank Ltd. (19.74%)
were placed better than KVB. The bank has higher
than stipulated CAR (16.07% vs. 9%), which implies that
the bank can withstand economic shocks more safely.
The bifurcation of CAR indicates that the bank’s core
capital is robust, i.e., Tire-I capital at 14.36%. The bank
could accelerate its assets growth by relaxing the credit
standards because the bank has a lot of available
capacity, i.e., higher than the stipulated required total
capital and lower second tire capital, which can be
extended up to 100% of Tire-I capital from the present
level of 11.91%. Its foray into new business areas such
as derivative trading confirms that the bank wants to
exploit its available capacity by investing in more risky
assets to strengthen its bottomline.
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