Final report with annexure

Karur Vysya Bank Rural Banking- An analysis for future strategies into Rural Banking

1. 1

An analysis of rural banking at
Karur Vysya Bank

Submitted by
Varun Vishnu
Reg no: 15010141260

Under the guidance of Dr. Janakiramudu P

In partial fulfillment of the Course- Industry Internship
Programme-IIP in Semester V of the Bachelor of Business
Administration (2015-18)

2. 2






Bachelor of Business Management



Industry Internship Programme (IIP)


Declaration


This is to declare that the Report titled “An analysis of Rural Banking at Karur Vysya Bank” has
been made for the partial fulfillment of the Course: Industry Internship Programme (IIP) in
Semester V by me at Karur Vysya Bank, Hosakote, under the guidance of Dr. Janakiramudu P.

I confirm that this Report truly represents my work undertaken as a part of my Industry
Internship Programme (IIP). This work is not a replication of work done previously by any other
person. I also confirm that the contents of the report and the views contained therein have
been discussed and deliberated with the faculty guide.



Signature of the Student :

Name of the Student : Varun Vishnu PV

Registration No : 15010141260

3. 3


Bachelor of Business Management


Certificate



This is to certify that Mr. Varun Vishnu PV, Regn. No. 15010141260 has completed the report
titled “An analysis of Rural Banking at Karur Vysya Bank” under my guidance for the partial
fulfillment of the Course: Industry Internship Programme (IIP) in Semester V of the Bachelor of
Business Management.



Signature of Faculty Guide:



Name of the Faculty Guide: Dr. Janakiramudu P

4. 4

Bachelor of Business Administration
Industry Internship Programme (IIP)


ACKNOWLEDGEMENT

I would like to express my gratitude & respect to Mr Rahul Theriri, Sr. branch manager
at Karur Vysya Bank, Hosakote, for his constant guidance, advice, encouragement & every
possible help in the overall preparation of this report.
I express my deepest thanks to my faculty guide Dr. Janakiramudu P for providing me
with all the necessary advices and guidance to carry out my project with minimum hurdles.
I perceive this opportunity as a big milestone in my career development. I will strive to
use gained skills and knowledge in the best possible way and will continue to work on their
improvement in order to attain desired career objectives.


VARUN VISHNU PV

5. 5

TABLE OF CONTENTS

Chapter Title Page No.
I Executive Summary 6
II
Introduction 7
2.1 Industry Overview 8
2.2 Company Overview 14
III
Project Profile 24
3.1 Objectives of the Study 25
3.2 Methodology 25
IV Observations and Analysis 27
V Findings 45
VI Recommendations 48
VII Conclusion 53
VIII Learning Outcome 54
IX Annexure 55
X References 64

6. 6



EXECUTIVE SUMMARY
Rural areas in India constitute 66.86% of total population according to 2017 census while
33.14% belongs to the urban sector. Commercial banks and financial institutions have not given
much attention to this sector so far until recently when banks started recognizing the potential
of rural markets. However the banks must be able to foresee the growth of this sector,
customize their products and services to match the requirements of the rural people and
strategize accordingly in order to become competent and successful in this market. If given
proper attention to this sector, it can contribute substantial growth towards the GDP and
domestic economy according to many economists and policy makers. The manufacturing and
service sectors itself cannot sustain the economy’s growth if the rural sector underperforms.
There are almost 64 regional rural banks in India of which most of them majorly focuses on
maximising their penetration by increasing the number of branches in rural regions. Due to lack
of awareness and skepticism towards technology rural community’s approach towards banking
has not changed and they prefer personally visiting bank branches to avail their services. This is
a major challenge for even a commercial bank like Karur Vysya Bank who has prior experience
in dealing with rural segments since setting up individual branches in required regions is
expensive and impractical. There must be an effort from these banks to change the rural
community’s outlook towards banking. Best efforts have been made in this project to analyse
the rural banking system and provide recommendations to KVB in terms of expanding its
banking operations towards the rural segments.

7. 7




INTRODUCTION

Banks play an important role in mobilizing and allocating resources in any country. Rural
people in India are facing problems in adequate supply of credit. The major source of credit to
rural households has been the informal sector.
Rural banking is the process of conducting banking transactions out in the country where bank
branches are too far away to be of use. Rural banking is popular for very small towns and
farmers who live far away from areas of larger population and cannot make the drive to these
locations whenever they need to use banking services. Typically, an agent of the bank will visit
these rural locations and offer to make transactions in an official capacity.
Regional rural Banks plays a vital role in the agriculture and rural development of India. The
RRBS have more reached to the rural area of India, through their huge network. RRBs were
established to mobilize rural areas small saving and provide other banking facilities to the small
and backward areas. RRB’s are usually sponsored by public sector banks thus they keep their
deposit with these bank & are also dependent for their loan operations & finance on sponsor
bank.


As far as India is concerned, it is populated highly with rural mass that undertakes the
agriculture and its allied activities at larger level. The income from these activities occupies
more in the Gross Domestic Product of India. It is well known that the banking system is the
heart of any Countries’ economy, striving to achieve growth and that remain a permanent and
dominating factor in the global competitive business environment. They are having a favorable
growth, asset quality and profitability. To improve the rural credit mechanism cooperative
banking sector were also introduced earlier and that was also not in a position to satisfy the
rural needs in terms of money. This inadequate situation led the Government of India to form a
committee to find feasible solution to enable easy rural credit satisfying mechanism. The
committee that headed by Shri. M. Narshimam in the year 1975 came out with its
recommendation to form Regional Rural Banks. In particular, the regional rural bank of India
mainly focuses on supply of credit to the rural people.

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2.1.INDUSTRY OVERVIEW

9. 9

Indian banking market is growing at an astonishing rate. Banks started recognizing the potential
of rural segments lately and started expanding its operations more towards this area offering
products and services to attract more rural customers and agricultural farmers.

Current state of rural banking in India
The Indian Economy
India is the 12th largest economy in the world in terms of gross
domestic product (GDP), and fourth in terms of purchasing power parity (PPP). The growth of
the economy is equally impressive with an average of over 8.0% during the last three years.
However, in terms of GDP per capita, India ranks a lowly 160th among other nations. Within the
country, there is a stark divide in the incomes of urban and rural areas with the average
monthly per capita consumption expenditure (MPCE) in urban India being almost double that of
rural India.
In addition, there are significant disparities in urban and rural
consumption expenditure between different states. Jharkhand and Orissa, for example, have an
MPCE of approximately Rs.900 in urban areas and Rs. 410 in rural areas. In other states like
Punjab and Haryana, the urban rural disparity is significantly lower. A fifth of the Indian
population is below the poverty line (BPL) today with a MPCE below Rs 340. In some states like
Jharkhand and Orissa, the proportion of BPL is greater than 40%. Diamond believes that the
segments that are not considered BPL should all be considered as “potentially bankable” with
genuine financial needs that could be met by formal financial and banking systems.

Current state of Indian banking
While urban India seems to be over-banked with more than 100% penetration (many urban
Indians have more than one bank account), rural India lags far behind with a 19% penetration.
The variance in rural and urban deposit and credit account penetration is not restricted only to
few states but is common across all states.
This low outreach can be explained by two key parameters:
access and usage.
Simply defined, access is the availability of financial services, and usage is the actual use of
those services. Access is influenced by issues such as the basic economic state of rural India,
lack of physical infrastructure facilities, regulatory constraints, and the economics of rural
banking. Usage is constrained by social issues such as illiteracy, incomplete service offerings by
banks, and high transaction costs in the formal banking system.
Access is explained in terms of infrastructure, physical distance, limited delivery capabilities,
regulatory constraints and the economics of rural banking. The banking infrastructure in rural
India is not encouraging, with just 7% of villages housing a bank branch. What’s more, the poor
physical and social infrastructure also impacts the access to financial services, with 23% of
villages going without electricity, 67% without a Post Office, and an average rural literacy rate
of 59% and secondary school penetration of 12%. This lack of physical and social infrastructure
in rural India is a key issue impacting access to formal financial services.
The average distance to a branch in India is approximately 3.8 Kms. While this compares
favorably to the average distance to a branch in a developed market like the U.S. (which is 6

10. 10

Kms6), there are significant additional challenges in India in the form of unpaved roads and
limited access to modern transportation. Most rural customers are likely to sacrifice an entire
day’s wage to travel to a bank branch which is open between 10:00am and 5:00pm. While some
banking transactions could be done over phone, this is rarely an option in a country with such
low rural tele-density. Limited delivery capability is a significant challenge. Much of rural India
is serviced through branches because ATM penetration is low and other channels such as Phone
and Internet Banking are non-existent. Intermediaries like Non-Governmental Organizations
(NGOs), Self-Help Groups, and Micro Finance Institutions (MFIs) are being used by banks to
improve access to credit and savings. However, these channels, in their current form, offer
limited services.
There are some regulatory constraints imposed by the Reserve
Bank of India (RBI) which may inadvertently contribute further to the lack of formal banking
services in rural areas. For example, the RBI does not allow banks to post any person other than
a security guard at ATMs. Hence, banks cannot deploy many ATMs in rural areas as many rural
customers require in-person support. A second regulatory inhibitor is that new banks planning
to establish a branch in a rural area have to receive approval from the Lead Bank and District
Collector of that district. Hence, banks choose not to open new branches in certain areas even
when it is profitable to do so because there is no certainty of getting approvals.

Market opportunity of Rural Banking
At present, a rapidly growing urban India is the focus of the banking sector; however, as the
deposit penetration numbers suggest , the market is highly competitive and over banked.
Despite this, most banks are still not shifting their focus to the rural opportunity, as they are
apprehensive about the total market potential of the rural market and the profitability of rural
banking channels. Contrary to the widely held notion, however, the rural market is attractive
from both a credit and deposit perspective. The credit demand in rural areas is approximately
Rs 1,330 billion (based on an estimate by World Bank). There are other studies by the Planning
Commission and ICICI Bank which put the figure even higher at Rs 1,440 billion and Rs 1,500
billion respectively. Similarly, on the deposit side, a large segment of the rural population does
not save with formal banking channels because banks are not accessible and do not provide the
appropriate products and service, leaving a significant opportunity to grow the deposit base.
At present, the penetration of banking in rural areas is sub-optimal with a large market
remaining untapped in both the liability (~ Rs 215 billion) and asset (~ Rs 1,204 billion) sides of
the business. These estimates clearly suggest that there is sufficient demand in the rural market
to encourage banks to think seriously about rural areas as an alternative growth opportunity.
As we identified earlier, access and usage are two broad concerns which explain why the
potentially bankable are unbanked. With regard to access, the challenge for banks is to identify
profitable channels that meet the needs of rural customers. With regard to usage, banks need
to understand the requirements of the rural customer and customize products and services.

11. 11

Usage issues for rural customers
Even if access to formal banking is provided to rural customers, there is no guarantee that these
services will be used. According to a study conducted by the World Bank, many households,
even in developed countries, choose not to have a bank account as they do not engage in many
financial transactions—they collect wages in cash, spend in cash and do not wish to be
burdened by a bank account. To compound the situation many customers in rural India, who
have access to and would otherwise choose to use formal financial services, do not do so
because the product and service mixes do not meet their needs.
The financial service needs of rural customers are not confined to just savings and credit, as is
usually assumed. Their financial needs are linked to their life cycle needs, ranging from savings
to credit to insurance to remittances. In fact, even the savings and credit products currently
offered to rural customers do not entirely meet their needs.
Access to savings and investment facilities is critical for the poor. The two critical needs for the
rural poor are micro-savings and frequent withdrawals. These needs facilitate a customer in
building capital over the long term, as well as coping with income shocks in the near term.
However, banks do not offer adequate services to address these needs. The lack of services,
therefore, leaves the rural poor with little option than to transact with the informal banking
market. A study conducted by Micro Save also concludes that the poor transact with the
informal sector because it will accept small amounts, provide doorstep service, and ensure ease
of enrolment.
Rural customers need loans not only for productive purposes but also for consumption needs
(Following Table). A part from agricultural support, rural customers need micro credit for
consumption, education and emergencies. Though banks offer purpose free loans (personal
loans and credit cards) in urban areas quite liberally, in rural areas sanction of such loans is
significantly restricted. Therefore, the poor raise these loans through the informal financial
system (it is worth noting that these loans taken from the informal system are almost always
repaid or renewed12). In addition, larger households need occasional high value micro-
enterprise loans for small capital investment. Though banks offer these loans, they require
excessive documentation and time-consuming processes which discourage customer
applications.
Insurance reduces the vulnerability of poor households by replacing the uncertain prospect of
large losses with the certainty of payout against small, regular premium payments. It is integral
to a comprehensive risk management strategy for poor households. This includes life, health,
accident and asset (dwelling, crop, and livestock) insurance. Banks and insurance firms do not
offer these services in many rural areas, leading the poor to rely on the informal financial
system.
There are many rural households which depend on weekly or monthly remittances from their
family members who have moved to urban areas. At present, they depend on informal
channels to remit the money and consequently either risk the loss of money or pay high
transaction fees. Banks do not offer seamless remittance facilities between urban and rural
branches as many of the rural branches are not computerized and connected to the main
bank’s computer systems. This often results in the beneficiary receiving the amount two weeks
after it has being transferred. This represents yet another key service which is not provided.

12. 12

REASONS FOR UNPROFITABLE OF RURAL
BANKING IN INDIA
High Non-performing Loans (NPL):
Banks have higher non-performing loans in rural areas because rural households have irregular
income and expenditure patterns. The issue is compounded by the dependence of the rural
economy on monsoons, and loan waivers driven by political agendas. NPLs from the agriculture
sector are 7.7%, compared to 3.5% across non-agriculture sectors. In order for banks to view
rural India as a growth opportunity, rather than a regulatory requirement, a combination of
these issues must be addressed. Increasing financial access to rural areas is contingent upon
basic conditions such as proper infrastructure and an enabling regulatory framework, as well as
innovative thinking on the part of commercial banks. Access issues, however, explain only one
part of the problem. Usage is an equally important issue for rural customers.
Low Ticket Size:
The average ticket size of both a deposit transaction and a credit transaction in rural areas is
small. This means that banks need more customers per branch or channel to break even.
Considering the small catchments area of a branch in rural areas, generating a customer base
with critical mass is challenging.
High cost to serve:
Branches are the most used channel in rural areas. This is because many rural people are not
literate and are not comfortable using technology-driven channels such as ATMs, phone
banking or internet banking. On the other hand, a branch is an expensive channel for banks. In
addition, rural people, whenever they have access to banks, have frequent low ticket and cash-
based transactions, which increase the overall transaction cost for their bank.
Higher risk of credit:
Rural households may have highly irregular and volatile income
streams. Irregular wage labor and the sale of agricultural products are the two main sources of
income for rural households. The poor rural households (landless and marginal farmers) are
particularly dependent on irregular wage employment. Rural households also have irregular
expenditure patterns. The typical expenditure profile of rural households is small, with daily or
irregular expenses incurred through the month. Furthermore, a majority of households incur at
least one unscheduled expenditure per year, with the most frequent reasons being medical or
social emergency. In short, the rural customer is generally considered to be a risky one.
Information Asymmetry:
Since many rural people do not have bank accounts, there is a lack of information on customer
behavior in rural India. Absence of a Credit Information Bureau also complicates the problem as
banks have to rely on informal sources to learn the credit history of rural customers. A lack of
reliable information can result in either missed opportunities in not approving otherwise
eligible loan candidates, or nonperforming loans.

13. 13

List of rural banks in Karnataka
RRB Sponsor bank State
Cauvery kalpatharu
grameen bank
State bank of Mysore Karnataka
Chikkamangalur kodaku
grameen bank
Corporation Bank Karnataka
Karnataka vikas grameen
bank
Syndicate bank Karnataka
Krishna grameen bank State bank of india Karnataka
Pragathi grameen bank Canara bank Karnataka
Vishweshariah grameen
bank
Vijaya bank Karnataka








35%
31%
21%
4%
2%
7%
Banking group wise classification with
market shares
sbi
nationalised bank
private sector bank
others
RRB
Foreign banks

14. 14






















2.2.COMPANY OVERVIEW

15. 15


Based out of Karur, Tamil Nadu, Karur Vysya Bank is one of the oldest private sector banks in
India. The bank has strong presence in its home state Tamil Nadu and in other southern states
of India. However, in the last few years the bank has also been scaling up its operations in other
states of India. At the end of 3QFY2017 the bank had a customer base of 6.09 million and
operated through 706 branches and 1,711 ATMs.
The Karur Vysya Bank Limited, popularly known as KVB, one such endeavour, was set up in
1916 by two great visionaries, the Late Shri M A Venkatarama Chettiar and the Late Shri Athi
Krishna Chettiar to inculcate the habit of savings and provide financial assistance to traders and
small agriculturists in and around Karur, a textile town in Tamil Nadu. Though the bank started
with a seed capital of Rs.1 lakh, it has withstood innumerable changes and challenges in the
past few decades
and has profitably emerged as one of the leading banks in India without compromising on its
fundamentals.
KVB has consistently maintained strong fundamentals with a higher percentage of Capital
Adequacy Ratio than mandated by the RBI. KVB has also been generating profits and rewarding
its stakeholders with handsome dividends since inception.



369
451
551
572
629
667
488
825
1276
1616
1645 1655
0
200
400
600
800
1000
1200
1400
1600
1800
FY 11 FY 12 FY13 FY 14 FY15 FY16
branches
ATM

16. 16



KVB opens its first digital centre as a part of strengthening its rural operations:
The first rural digital centre of Karur Vysya Bank was kick-started at Kathirampatti, an unbanked
rural village in Erode district, Tamil Nadu.
The centre is part of the bank’s initiative to empower the rural populace in a cashless
environment. It is meant to create a digital payments ecosystem for all day-to-day financial
activities in the village.
KVB has, according to its Managing Director K Venkataraman, already brought on board about
57 per cent of the local population by opening accounts, and organising campaigns to sensitise
and educate the villagers and merchants on the use of digital services. The centre is provided
with a cash recycler machine (which accepts and dispenses cash) and a passbook printer. Two
tablet systems have been installed to enable customers conduct banking transactions
themselves (self-service), including services such as online booking of rail tickets, mobile top-
ups and bill payments.
The local merchants have been provided with micro-ATMs which will enable them to receive
payments based on AEPS. A fingerprint reader attached to the micro-ATM recognises the
Aadhaar-enabled bank details of the customer and ensures transfer of funds to the merchant,
he explained.






551 572
629
667
711 719
752 773
1276
1759
19832008
21912210
2251
2295
0
500
1000
1500
2000
2500
FY 13FY14FY15FY16FY1717-Jun17-Sep17-Dec
Branches
ATM+Cash recylers

17. 17

Organizational structure




























Board of Directors
Key Executives
Retail and branch
banking head
Regional head

National head
Zonal head Zonal head
Cluster head Area sales manager
Branch manager Regional sales
manager
Personal banker
authorize
Sales manager
Personal banker Team leader
Sales executive

18. 18




Board of Directors
Name Designation
Mr.B Swaminathan Chairman
Mr.A K Praburaj Director
Mr.M K Venkatesan Director
Dr.V G Mohan Prasad Director
Mrs.K L Vijayalakshmi Director
Mr.N S Srinath Director
Mr.M V Srinivasamoorthi Director
Dr.K S Ravichandran Director
Mr.A J Suriyanarayana Director
Mr.G Rajasekaran Director
Mr.P R Seshadri Managing Director & CEO

Key Executives
Name Designation
Mr.T Sivarama Prasad CFO & General Manager
Mr.Srinivasa Rao Maddirala Company Secretary
Mr.J Natarajan General Manager
Mr.S Sekar General Manager
Mr.M Balachandran General Manager
Mr.V Srinivasan General Manager
Mr.S Balaji General Manager
Mr.G S Anantha Kumar General Manager
Mr.C Saravanun General Manager
Mr.K Venkateswara Rao President & COO

19. 19

Mission of the company
 Adapt technology to introduce innovative products and services as well as increase the value of
products on an on-going basis and provide them at reasonable rates.
 Expand branch network to reach the top business centres, besides unbanked and under banked
areas in the country;
 Strengthen the financials through effective deployment of funds and ensuring financial
discipline while adhering to the regulator's guidelines
 Update the knowledge and skills of the human capital to provide quality customer support.

Vision of the company
Delight customers continually by blending tradition with technology to deliver innovative
products and services at affordable rates through a pan India branch network.


Rural products and services offered
1. Vehicle loans: These loans will help purchase agricultural vehicles/Machineries to improve
the agricultural efficiency and make farming activities far more effective. KVB offers
competitive rates of interest on all loans, which can be repaid in easy installments. These
loans helps in purchasing two wheelers, combine harvesters, tractors and power tillers too.

Green harvester
The Green Harvester Scheme finances the purchase of all types of harvester. Now you can
easily afford to purchase this harvester that will help you to efficiently increase your
productivity and get the most out of your land.
Features
 For the purchase of a combine harvester.
 The guarantee for the loan as acceptable to the bank
Charges and Limits
Loan Amount Cost of harvester minus the margin
subject to maximum of Rs.25 Lakhs
Repayment 3 to 5 years
Margin Minimum of 20%
Rate of interest contact nearby branches
Primary Security Hypothecation of the harvester to be
purchased out of our bank finance
Collateral
Security
100% of loan amount (preferably
building)

20. 20


GreenTrac
This loan is for the purchase of a tractor or power tiller. With the purchase of tractors and tillers
you will add convenience to your farming activities.
Features
 Tractor loan is eligible to both individuals and joint applicants.
 For the purchase of a tractor, the agriculturist should own not less than 3 to 5 acres of
perennially irrigated land or corresponding acreage as prescribed.
 For the purchase of a power tiller the agriculturist should own between 2 and 3 acres of land.
 The loan can be used to purchase any model of tractors and accessories
 The guarantee for the loan as acceptable to the bank
Charges and Limits
Loan amount Cost of tractor and implements minus the
margin.
Margin Minimum of 20%
Rate of interest CONTACT NEARBY BRANCH
Repayment period 5-7 Years
Primary Security Hypothecation of the tractor & implements
to be purchased out of Bank Finance.
Collateral Security 100% of the loan amount.

2. Green card/kisan card: Green Card/Green Card Plus (Kisan Card)
This loan is designed to give agriculturists in rural, semi-urban and urban areas financial aid
for working capital and term credit requirements. To avail of this loan, you have to be the
primary land owner. KVB Green Card Loans provide you with short term solutions so that
you can ensure the smooth functioning of your daily agricultural activities and also term
loan requirements.
Features and Benefits
 Available to agriculturists in rural, semi-urban and urban areas.
 Provides assistance to individual farmers who are owners and cultivators of land.
 Serves as working capital and short term /long term credit
Charges and Limits
Limit No maximum or minimum limit
Margin 20%
Rate of CONTACT NEARBY BRANCHES

21. 21

interest
Up to Rs. 50,
000/-
Above Rs.
50,000/-
Processing
Charges
0.30%
Validity 5 YEARS SUBJECT TO ANNUAL REVIEW
Security Up to Rs. 2,50,000/- - hypothecation of
crops and other agricultural implements
Over Rs. 2,50,000/- - hypothecation of
crops and other agriculture implements,
mortgage of agriculture lands and Third
party guarantee
3. KVB Happy kisan: The Happy Kisan Scheme provides finance for cultivation costs personal
expenses to agriculturists who own land and are recommended for the loan by approved
supply chain agents. It is a short term loan and the repayment amount is in a lump sum
rather than in installments.
Features
 Eligibility criteria: Farmers who own farm land and are recommended for the loan by approved
Supply Chain agents
 Provision of short-term crop loans (for cultivation costs) including consumption and personal
expenses of the farmer.
 Usable for all crops grown in the respective areas
Charges and Limits
Per Borrower
Limit
The Limit will be based on the land holding and
crop cultivated and the approved scale of finance
Guarantee Third party guarantee and guarantee of the
respective Supply Chain Agent recommending
the loan to the farmer
Rate of
Interest
CONTACT NEARBY BY BRANCHES
Security Primary security will be hypothecation of crops
grown and to be grown
Collateral For limits up to Rs.50,000/- no collateral is
required.
For limits over Rs.50,000/- Equitable mortgage of
agricultural land of the beneficiary

22. 22

Repayment
Period
The repayment period should coincide with the
harvesting and marketing period and it should be
as a lump sum repayment along with interest.
However, it should not exceed a maximum
period of 15 months

4. Warehouse receipt loans:
Eligibility
Farmers, Individuals/ Sole propriety concerns / Partnership Firm/ Processors, Arthiyas,
Exporters/ Importers who are original depositors covering non–perishable agricultural
commodities.
Type of Warehouse:
 Central/State warehouse corporation
 Banks approved Private warehouses/Cold storages
 Collaterally managed by NCMSL/NBHC/Star Agri
Nature of Loan:
 Short Term Loan
Purpose
 To meet working capital requirement
Charges and Limits
Eligibility Loan For Farmers/Corporates engaged in
Farming

Loans upto Rs.50 lacs to individual farmers
groups of individual farmers directly
engaged in Agriculture and Allied Activities

Micro & Small & Medium Enterprises
fulfilling the eligibility criteria
Margin 25%-50% depending on the commodity
Processing charges Upto Rs.50 [email protected]% ,
Above [email protected]%
Repayment period 9-12 months based on commodity

23. 23

Swot analysis
Strength
1. Innovative financial products with use of
technology
2.Tie-ups with different financial
institutions for various products
3. Stable performance in economic
slowdown
4. All the branches are powered with CBS
—Core Banking Solution
5. Ranked as Best Small sized Bank, 2010
by Business World
Weakness 1. Regional concentric i.e. in South India
only
2. Low publicity and brand visibility
Opportunities
1. Industry banking in the region
2. Extensive penetration in rural banking
Threats
1. Economic slowdown and recessions
2. Highly competitive environment
3. Stringent Banking Norms
4. Local money lenders in the rural areas

24. 24










3. PROJECT PROFILE

25. 25

3.1. OBJECTIVES OF THE STUDY
 To study the recent developments in the Regional Rural Banking system of India.
 To study the problems and challenges faced in rural banking and to study the role of
Regional Rural Banks in the growth of our economy.
 Strategic competitor benchmarking- To analyse the performance, functions and
developments of Kaveri Grameena Bank (RRB based in Mysore) in Karnataka.
 Strategic competitor benchmarking- To analyse the performance, functions and
developments of Kaveri Grameena Bank (RRB based in Mysore) in Karnataka.
 Compare, analyse, visualize and communicate the insights to provide both micro and macro
level recommendations to KVB Karnataka Rural to achieve significant improvement and
focus on their Rural Banking Operations.
3.2. METHODOLOGY
3.2a- Research statement

 KarurVysya Bank is a traditional/ old generation bank that has focused historically on
consistently earning profits and maintaining an uninterrupted dividend payment record.
 KVB pride themselves of having a solid customer base of 6.75 million and a full portfolio
of e-banking and technology products.
 Despite the important role and organised financial inclusion efforts taken up in
providing banking services and credit to the rural population, KVB is faced with
challenges.
 The case-in point for this study wasKVB Hoskote branch. However our effortswill be to
expand the scope of this research to identify these challenges and to provide insights to
the overall operations of KVB in Rural Karnataka.

3.2b- Study Approach, design and Data Collection:

This section deals with the various methodologies and approaches that we used during the
study and for the preparation of this report.

 Observations
The working environment at KVB was observed and recorded in detail since day 1 and the idea
was to make myself a part of the organization’s culture, conducts, practices and the rules and
regulations. My mentor, Mr. Rahul Theriri was very supportive and helpful in terms of my
adaptation to the work environment and completion of various tasks assigned to me during the
course of my internship.

 Primary data and Qualitative Interviews:
Mr. Rahul Theriri, Sr. Branch Manager at KVB Hoskote (Bangalore Rural) is been identified as
one amongst the key leaders in state by KVB to drive rural Penetration.

26. 26


Structured in-depth interviews and discussions at various stages with Rahul enabled me to
understand a holistic picture of the current performance, strengths and challenges at Karnataka
Rural. He also guided me in understanding the procedures by which the bank operates and
does rural financing, the pros and cons of micro-financing at the operational level and why
Rural Banking is viewed as a priority sector for the bank moving forward.
 Competitor benchmarking-This portion consisted of in-depth organisational study on Kaveri
Grameena Bank (KGB)products and Services stakeholders, people, historical performance, past
two year progress and Financial inclusion efforts.
 Branch Segmentation-There has been a high focus on Rural among the private Banks and KVB
has been on-parin terms of its focus on rural in comparison with its competitors.
KVB recently started their dedicated focus on rural banking like most Private banks and hence
KVB do not have a separate division that focuses solely on rural banking yet. Hence we have
made our best effort to segregate and identify the Rural branches that operate in Karnataka
based on geographical definition as well as mentor inputs.
 Quantitative Research:
Analysis on KarurVysya Bank’s Internal rating system (CSB) for all KVB Rural Branches.
KPIs comparison:Data used for this research was based on-
a. Financial analyses of KVB Annual report and balance sheet for FY 17.
b. Financial analyses of KVB Annual report and balance sheet for FY 17.
c. Analysis of KVB Corporate report and investor’s presentation.
d. Analysis of KVB Karnataka state (Bangalore Division) Balance sheet and annual
performance reports- FY 16 and FY 17.
e. Analysis of balance sheets branch-wise for the 13 rural branches of KVB in Karnataka.

Study Limitations
1. Limited Time: The project was completed within a span of 45 days.
2. Limited Information: Since there has been limitations with respect to privacy of the Bank's
policy, abundant statistical data could not be collected.
3. Financial Limitations: The project was funded completely by the intern.
4. Scope of the topic: Rural Banking is a broad topic, however the focus has been dedicated to
try and make this study as implementable as possible from the KVB regional operations
perspective and to show value for stakeholders and potential investors.

27. 27













4. OBSERVATIONS & ANALYSIS

28. 28

4.1- Qualitative research and Company Insights:
In-depth interviews and conversation with my mentor provided me significant amount of
takeaways with regard to the future strategy of the company and some of these are worth
mentioning:
 There is significant strength and potential in the product& services offerings at KVB for its
semi-urban and rural customers in comparison to competitors:
o Ultra-small branches and Digital Micro- centers that has less than 5 employees per
branch.
o Cash Recycler Machines- This machine can both accept cash, receive cash and print
pass-books.
o Micro-ATMs-based on Aadhar Enabled payment system(AEPS).
o Bharat Bill Payment System (BBPS) - A facility offered through NPCI where in
customers can make utility bill payments like electricity, water, gas, DTH and
telecom services through a single utility, instead of accessing multiple sites.
o United Payments Interface(UPI)- a mobile app that helps customers to transfer funds
inter-bank, 24 X 7 through a smartphone
o People in rural areas have started to learn and use the banking products that are
made available to them. The products that are mainly used are agriculture loan,
vehicle loan, savings account and fixed deposits.
o Technologies such as RTGS, NEFT, third party products such as insurance and mutual
fund are being increasingly used by customers. Increasing rate of mobile and
smartphone penetration is helping this cause of creating awareness among the rural
population.
o There are still many customers who prefer visiting banks for depositing money and
withdrawing cash as they are still reluctant about technology.

 KVB has been rapidly strengthening their rural digital drives since opening of their first
digital center and Aadhar enabled payment system in Erode in August 2017. They currently
have over 50 ultra-small branches for servicing unbanked rural centres for KVB and the plan
is to strengthen presence in more and more villages with similar digital centres.

 KVB has highest presence into Semi-Urban 37% and least in Rural- 16%.

29. 29


 Since KVB has always focused on keeping liabilities granular, this would provide significant
opportunity for growth in rural assets.
4.2- Strategic and Competitor benchmarking
Although direct competitors (Urban Private banks) pose heavy threat in terms of competition in
rural, KVB relies on its strength as a strong Semi-Urban and Rural player in the market. KVB has
always focused on gaining sustainable revenue, keeping NPAs and liabilities low, and making
consistent growth organically in terms of acquiring new customers and profitability.
KVB views its major competitors to be Regional Rural Banks themselves and as far as Karnataka
is concerned, there are 3 of them-
1. KaveriGrameen Bank(KGB)
2. PragathiKrishna Grameena Bank (PGB)
3. Karnataka VikasGrameena Bank (KVGB).
Hence we concluded that since Hoskote is located in Bangalore Rural, a KPI based competitor
benchmarking study on KaveriGrameena Bank (KGB) as the biggest potential competitor makes
perfect sense.
KaveriGrameena Bank (KGB) is the only RRB that has presence in Bangalore rural and operates
out of 41 branches in Bangalore Rural alone as opposed to the seven KarurVysya Bank
branches. KGB is also one of the most profitable RRB in the country. Moreover KGB has 502
rural branches operating out of 10 districts in Karnataka.
KAVERI GRAMEENA BANK
KaveriGrameena Bank(KGB), a Regional Rural Bank established under the Regional Rural Banks‘
Act 1976, is a Scheduled Bank jointly owned by the Government of India, State Bank of Mysore
and Government of Karnataka (share capital contributed in the ratio of 50 :35:15 respectively)
permitted to carry all kinds of banking business. The Bank operates in 10 districts of South
Karnataka, having its Head Office at Mysuru City with eight Regional Offices at Mysur, Mandya,

30. 30

Bengaluru, Tumakur, Hassan, Chamarajanagar, Madikeri and Chikkmagalur. The Bank came into
existence on 1st November, 2012 (sponsored by State Bank Of Mysore) by amalgamation of
Cauvery KalpatharuGrameena Bank, Chikmagalur Kodagu Grameena Bank and
VishvesvarayaGrameena Bank, sponsored by State Bank of Mysore, Corporation Bank and
Vijaya Bank respectively.
4.2a- Board of Directors:
Board of Directors of Kaveri Grameena Bank after amalgamation in 2012 is represented by
Officers from theSPONSOR BANK, NABARD, RBI& GOVT OF INDIA and headed by the Chairman.



4.2b- Key Products and Services:
Being a rural bank that whose coverage is over 80% rural, most of the products and services in
KGB’s offerings are customised to cater the needs of rural population.
In addition to extending banking facilities KGB provides services like crop insurance coverage,
NREG, Social Security Pension payments, and Non life insurance products that serves the core
needs of Village people.


Loans such as crop loans and Housing loans have lower and competitive interest rates.

31. 31

1. Basic Savings Bank Account
The objective of the scheme is to facilitate vast sections of
rural poor to open an account with the Bank no frills
accounts comes with very low minimum balances with low
charges. Ideal for rural poor. Details are

Purpose To facilitate everyone to
open/maintain Bank account
with no costs
Eligibility Individuals with age of 18 years
or above
Available at All Branches of the Bank
Initial deposit amount Zero
Minimum balance to be maintained Zero
Rate of Interest 4.00% per annum. As applicable
to normal savings Bank account
Operation of account Withdrawls by way of withdrawl
slips. Maximum four withdrawls
per month including from ATMs.
No cheque book facility
All other rules and regulations as
applicable to Savings Bank
account are applicable.

2. Cumulative Deposit
1. Small savings grows to a huge deposit.
2. Minimum Deposit: Rs 100 per month and in multiples of Rs 10/- thereafter.
3. Period of deposit- 12 months to 120 months.
4. Rate of Interest - As applicable to Term deposit rates announced by the Bank from time to
time (refer interest table).

3. New Deposit schemes
SPECIAL SCHEMES OF DEPOSITS
ATTENTION: THREE NEW DEPOSIT SCHEMES WITH ATTRACTIVE INTEREST RATES.
1.KAVERI LAXMI: INVEST Rs.1000/- HARVEST Rs. 2000/- IN 2770 DAYS.
2.KAVERI LAKHPATHI: INVEST EVERY MONTH Rs.510/- BECOME LAKHPATHI IN 120 MONTHS.

32. 32

3.KAVERI KANAKADHARA: INVEST FOR 555 DAYS EARN INTEREST WITH ANNUALISED YIELD AT
Rs.10.21 (LIMITED PERIOD) AND 10.79% FOR SENIOR CITIZEN.

4.INSURANCE SERVICES
The Bank is CORPORATE INSURANCE AGENT for
1. SBI Life- Life Insurance Policies.
2. United India Insurance Company- General Insurance Policies.

SBI LIFE HOUSE INSURANCE SCHEME:
Objective :
To protect against the risk of death due to any reason during the tenure of the loan. The
scheme will be operated as a group insurance scheme at all branches of KaveriGrameena Bank.
Persons Covered:
1. Housing Loan borrowers in the age group of 20 to 60 years
2. In good health and not suffering from any serious illness
3. Opts for the scheme and sign the consent letter
SUM Insured: Equal to the outstanding loan amount including the interest up to the maximum
amount .
Benefits: in the event of death of the insured person due to any cause, the sum assured would
become payable to the branch.
Period: the terms of the insurance cover is equal to the tenure of the loan, subject to a
maximum age of 70 years.
Periodicity of Premium: Single premium payable in advance.
SBI Life Super Suraksha- Group Insurance Scheme:
Objective: To extend life insurance coverage at a relatively low cost.
1. Persons covered: All the depositors and borrowers who have attained the age of 18 years
and up to the age of 50 years, which will terminate on the life insured attaining the age of 55
years.
2. Those above 40 years would be charged a differential premium.
3. Sum assured will vary based on age.
4. Nomination is compulsory.
The cover ceases when a member withdraws from the scheme or fails to pay renewal premium.
Coverage: A member of the Group Insurance scheme has two options for life cover.
1.Sum assured Rs 25000/-
2.Sum assured Rs50000/-
Premium will be recovered yearly on a fixed date called payment date. At the time of joining,
premium is recovered on prorate basis up to the next premium payment date.

Interest Rates on Loans/ Advances:

33. 33

Sl No. Loan
Interest
Rate(%)
1 Crop loans [Subvention period only]
a. Up to and inclusive of Rs.3.00 lakh 7
b. Above Rs.3.00 lakh 14.25
After Subvention period
a. Up to and inclusive of Rs.50,000/- 11.5
b. Above Rs.50,000/- & up to and inclusive of Rs.1.00 lakh 12
c. Above Rs. 1 lakh & up to & inclusive of Rs. 3.00 lakh- 12.5
c. Above Rs.3.00 lakh 14.25
2 Agriculture and Allied Activities 11.5
a. Up to and inclusive Rs.2,00,000/ 12.25
b. Above Rs.2,00,000/ & up to & inclusive of Rs.5.00 lakhs 13.25
c. Above Rs.5.00 lakh 13.75
3 Farm Mechanisation 13.75
4 Vehicle Loan (agriculturists)
a. Two Wheeler 14.5
b. Four Wheeler 13
5 Gold Loan
a. Up to and inclusive of Rs.1.00 lakh 11
b. Above Rs.1.00 lakh 11
6 Personal Loan to Agriculturists 14.75
7 MSME [Including TL, C/cr, CTL] WC/TL
a. Up to and inclusive of Rs.50,000/- 12.00/12.00
b. Above Rs.50,000/- & up to Rs. 2,00,000/- 13.25/13.00
c. Above Rs. 2,00,000 &upto& inclusive of Rs.10.00 lakh 14.00/13.75
d. Above Rs. 10.00 lakh &upto& inclusive of Rs.25.00 lakh 14.25/14.00

Note: Aggregate limit per borrower should be considered while fixing
the R.O.I F. Loans up to Rs.10,00,000/- where CGTMSE cover is
available: 11.50/11.50

Note: CGTMSE COVER IS NOT AVAILABLE FOR LOANS GIVEN FOR
RETAIL TRADE ACTIVITY
8 Public House Building loan For both Rural & Urban areas 14.25/14.00

a. Rural Housing scheme/GramaDhama ( Eligible Up to Rs.3.00 lakh
only) 11
b. Direct Housing loan up to and inclusive of Rs.25.00 lakh 10
Farm House 13.5
9 Education Loans:
a. Up to and inclusive of Rs.4.00 lakh 13.5
b. Above Rs.4.00 lakh 14.5
10 Self Help Groups & JLGs
a. Up to and inclusive of Rs.2.00 lakh 13

34. 34

b. Above Rs.2.00 lakh & up to and inclusive of Rs.5.00 lakh 13.75
c. Above Rs.5.00 lakh 14.5
11 General Credit Card (upto and inclusive of Rs 25000/) 12
12 Other Priority Sector Advances [Not specified above]
a. Up to and inclusive of Rs. 2,00,000/ 12.5
b. Above Rs.2,00,000/ & up to and inclusive of Rs.5.00 lakh 13.75
c. Above Rs. 5.00 lakhs 14.25

4.2c-Rural Development, Financial Inclusion and Social Security schemes:
KGB’s priliminary objective is to cater the basic banking needs of rural people in particular and
to contribute to the development of rural economy and prosperity of the region and
employment generation. Some of the most succesful programs here are:
Joint Liability Groups: ―To help the rural poor small and marginal farmers, tenant farmers and
oral lessees, share croppers, and entrepreneurs engaged in various types of activities, who do
not have proper land records for availing loanKGB has formed Joint Liability Groups and issued
loans to the groups for growing crops and other allied activities.JLG financing works on similar
lines of Self Help Groups but there is no compulsion for savings. As on 31.12.2017KGB has
financed6051 JLG groups with credit outstanding Rs. 62.81 crore.
Farmers Club: ―Farmers Club is a forum of farmers to effectively convey the issues/problems
of the farming community/village to departments concerned and to find solutions. Some of the
objectives of Farmers Club are as below:
 Having contact with new markets
 Companies for marketing agricultural produce
 Create awareness among farmers about new and innovative method of farming, post
harvesting management of produce, marketing, water conservation, e.t.c., for better
productivity and profitability.
 To enlighten the members about new policies of the government, like storage, marketing,
exports etc.
The Farmers Club educate the villagers/farmers on various matters by arranging meets, seminar
and exposure visits. Farmers Club educates the farmers/villagers to utilize the bank loan for
productive purpose and to repay the bank loan within the due date. Farmers Club creates
awareness among the farmers about social evils like untouchability, communalism, atrocity on
women, child labour, bonded labour, dowry system etc.

35. 35

As of today KGB has launched over 2500 Farmers Clubs. With a view to strengthen the
movement of educating the farmers community, the Bank has implemented yet another
innovative step by forming Federation of Farmers Club at taluk level.
Money Lender Free Villages: The Bank is voluntarily pursuing the objective of freeing
households in debt from the clutches of the private money lenders. Basic credit needs are met
by the bank to avoid approaching money lenders. Providing Self Employment Training to Rural
Youth.KGB has joined hands with the Sponsor Bank to sponsor Rural Self Employment Training
Institution at Chikkaballapura, to provide training to rural youth in vocational/income
generating activities.
Self Help Groups:―The Bank is taking initiative for expanding its outreach in credit linkage with
due consideration to land holding support to SHGs from reputed NGOs. The Bank continued to
promote SHGs on its own as a Self Help Promoting Institution (SHPI), besides assisting groups
formed by other NGOs.
NABARD appreciating the progress achieved has advised the Bank to strengthen the SHGs by
continuing promotion / linkage even after end of NABARD assisted programme. The cumulative
linkage of SHGs is 74080 groups and the limit sanctioned is Rs.1134.76 crores.
All KGB Branches have at least one Farmer Club. The objective of the Farmer Clubs is to help the
farmers to update knowledge on scientific farming. Our branches are organizing periodical
extension activities involving KrishiVigyan Kendras, Agricultural Colleges, Agriculture/
Horticulture/ Animal Husbandry Departments, Subject experts and successful farmers. These
meets aim at creating awareness about the latest scientific farming practices amongst the
farmers.
Implementation of Financial Inclusion Plan in villages having population of over 2000
The Bank has implemented Financial Inclusion Plan by providing banking facilities to habitations
having population of above 2000. The bank has covered 245 Villages allotted by SLBC where
population is above 2000 through either Brick and Mortar Branches or B.Cs.
Implementation of Financial Inclusion Plan in villages having population of below 2000
2855 unbanked villages are allotted to our Bank in respect of villages having population below
2000 in 10 districts of the Bank’s command area. Out of these 2855 villages, 1493 villages are
covered by existing and new Business Correspondent Agents.
The Bank has so far engaged 335 Business correspondents through partners M/s. Integra Micro
Systems (Pvt.,) Ltd., Bangalore (Technology Service Provider) for providing Banking and financial
services at the doorsteps of the customers by using technology.

36. 36

Financial literacy centers
The centers educate the people as to where and how the services can be availed, etc., and
create a need and synergize the demand thus created with the supply of financial services by
the formal institutions.The Bank has opened 8 financial literacy center's at Pavagada,
Chikkanayakanahally, Devanahalli, Pandavapura, K.R.Pet, Arakalgud, H.D.Kote,and Yelandur.
Direct Benefit Transfers
Government of India introduced Direct Benefit Transfers (DBT) into the Bank account of the
beneficiaries under various programmes. Under Direct Benefit Transfer, Government benefits
like MGNREGA, Fertilizer Subsidy, Scholarship, LPG subsidy, Social Security pension, etc., are
electronically transferred into the Bank account of the beneficiaries.
Government of India launched Direct Benefit Transfer scheme for LPG in Mysore & Tumkur
Districts of our command area on pilot basis. Holding AADHAAR number document as basis to
receive the LPG subsidy in Bank account. The AADHAAR number is the linkage between the
Bank account and LPG consumer number.
The Bank has seeded 313952 AADHAAR card numbers to the Bank accounts of the beneficiaries
and an amount of 20.74 crores is credited to these accounts under Direct Benefit Transfer
Scheme.
Non- conventional banking activities
KGB has its presence in other areas like financing for solar lighting, Rural Toilets and affordable
Insurance coverage to economically weaker sections of the people especially in the rural areas.
The Bank`s thrust of Sampoorna Concept i.e. covering whole village under a particular scheme
rather than scattered coverage over a wide area is continued. The Schemes covered under
Sampoorna Concept are Sampoorna Solar Grama, Sampoorna Smoke free Grama, Sampoorna
Swacha Grama, Sampoorna Vima Grama, Sampoorna Money Lenders Free Grama and
Sampoorna Kisan Credit Gramas.
As of now 6 villages are covered under the Sampoorna Concept and 18 villages are completely
declared as Sampoorna Solar Gramas.

37. 37

Social Security Schemes:


4.2d-Organizational Structure:


4.3- KVB Branches segmentation

We have made our best efforts in terms of segregating and identifying the Rural branches that
operate in Karnataka based on the theoretical definition of rural as well as Industry mentor
inputs. Below are 13 the branches that were identified as part of Rural Karnataka:

 ATTIBELE
 CHANDAPUR
 DODDABALLAPUR
 HOSAKOTTE
 CHIKKABANAVARA

38. 38

 NELAMANGALA
 DEVANAHALLI
 HIRIYUR
 CHINTAMANI
 GAURIBIDANUR
 KOLAR Gold Fields
 RAMANAGARAM
 HEBBAGUDI
4.4- Geographical Regions (District-wise) Covered by the Two Banks:
KarurVysya Bank KaveriGrameena Bank
Belgaum Mysuru
Bellary Chamarajanagara
Chitradurga Hassan
Dakshina Kannada Tumkur
Davangere Bengaluru Rural
Dharwad Ramanagara
Chikballapur bengaluru Urban
Gulbarga Chikamagalur
Kolar Kodagu
Koppal Mandya
Raichur
Shimoga
Hassan
Tumkur
Bengaluru Rural
Ramanagara

Bengaluru Urban
Mysuru

Green- Districts where KVB has presence, KGB is no presence.
Yellow- Districts where both KVB and KGB has presence.
Red- Districts where KGB has presence, KVB has no presence.
4.5- KarurVysya Bank (Karnataka Rural) branch-wise performance based Internal rating
system (CSB)

39. 39

The following has been the achievement scorecard vs Target for the 13 rural Branches.
Century Scorecard-Karnataka Rural( Achievement Percentage)
Branch 2016-17 2017-18 (based on Q3 performance) Growth
ATTIBELE 74.97 44.87 -67%
CHANDAPUR 45.15 62.39 28%
DODDABALLAPUR 66.58 51.78 -29%
HOSAKOTTE 63.25 47.54 -33%
CHIKKABANAVARA 38.53 97.84 61%
NELAMANGALA 85.71 57.92 -48%
DEVANAHALLI 25.2 67.49 63%
HIRIYUR 55.83 61.32 9%
CHINTAMANI** NA 95.11 NA
GAURIBIDANUR** NA 82.43 NA
KOLAR Gold Fields 66.63 68.55 3%
RAMANAGARAM 43.04 50.54 15%
Hebbagudi 66.67 65.95 -1%
Overall 57.41 66.44
**New Branches and operational since 2016
Base Metrics:
SL NO PARAMETER WEIGHTAGE
1 Savings 15
2 Current 15
3 Time Deposits 5
4 Advances 10
5 PBG 10
6 CBG 10
7 CIG/AGRI 10
8 NPA 10
9 Non Interest Income 10
10 Profit 5
TOTAL 100

4.6- Branch-wise KPI based performance:

40. 40

BRANCH Net
Depos
it (16-
17)
Curre
nt
(16-
17)
Saving
s (16-
17)
Advan
ces
(16-
17)
Non
Inter
est
Inco
me
(16-
17)
Profit
(16-
17)
NPA
Account
s(N) (16-
17)
NPA
(16-17)
CD
Ratio
ATTIBELE
20.24
4
3.333
6
9.635
3
31.080
6
0.993
7
1.937
4 1
0.24347
28
153.5
299
CHANDAPUR
25.05
28
2.653
9
9.986
1
28.840
6
0.804
1
2.320
3 0 0
115.1
193
DODDABALL
APUR
39.71
84
3.750
8
13.50
54
35.452
1
0.491
2
1.791
3 14
0.51081
57
89.25
863
HOSAKOTTE
37.62
89
2.861
3
13.38
5 55.617 0.798
2.776
1 5
0.22050
891
147.8
039
CHIKKABANA
VARA
11.72
35
0.522
5
3.812
4 6.2951
0.304
6
-
0.088
8 0 0
53.69
642
NELAMANGA
LA
9.633
3
1.471
5
3.860
1 5.9728
0.208
1
-
0.037
7 0 0
62.00
16
DEVANAHALL
I
5.849
6
0.509
5 1.637 2.8537
0.086
3
-
0.239
1 1
0.01866
72
48.78
453
HIRIYUR
7.857
6
1.503
6
3.282
8 9.2351
0.291
6
0.280
7 10
0.11504
6
117.5
308
CHINTAMANI
**
7.782
6 1.809 2.789 1.5118
0.063
2
-
0.200
1 0 0
19.42
538
GAURIBIDAN
UR**
1.284
8
0.306
2
0.662
2 1.6295
0.046
7
-
0.339
5 0 0
126.8
291
KOLAR Gold
Fields
149.3
18
4.876
6
30.64
66
19.491
4
0.789
5
0.675
9 56
0.47382
12
13.05
362
RAMANAGA
RAM
20.38
58
2.398
2
7.918
9
24.235
4
0.417
2
1.122
8 15
0.15197
35
118.8
837

41. 41

HEBBAGUDI
33.39
96
4.121
4
20.87
54
23.286
1
1.060
5
1.748
1 0 0
69.71
97
OVERALL
369.8
789
30.11
81
121.9
962
245.50
12
6.354
7
11.74
74 102 1.734 66.37
*All amount in Crores
**New Branches

4.7- DEPOSITS BREAKUP
Deposits
KVB Karnataka Rural
FY-17
KGB Karnataka FY-
17
KVB Karnataka FY-
17
KVB
India
FY-17
Amount
(In Cr.)
Percent
age
Amount
(In Cr.)
Percent
age
Amount
(In Cr.)
Percent
age
Percent
age
Total Deposits 369.8789 100%
9632.5258
81 100% 3738 100% 100%
Term Deposits 217.7646 59%
7224.5258
81 75% 2760.64 74% 72%
Savings Bank
Deposits 121.9962 33% 1444.8 15% 677.4 18% 18%
Current
Account 30.1181 8% 963.2 10% 299.96 8% 10%


59%
33%
8%
KVB Karnataka Rural
Term Deposits
Savings Bank Deposits
Current Account

42. 42






75%
15%
10%
KGB Karnataka
Term Deposits
Savings Bank Deposits
Current Account
74%
18%
8%
KVB Karnataka
Term Deposits
Savings Bank Deposits
Current Account

43. 43



4.7- BREAKUP OF AGRI-BANKING ADVANCES/LOANS
AGRI-LOAN BREAKUP (Amt in Cr.)
Sl No Loan Type 31-Mar-15 31-Mar-16 31-Mar-17
1 Govt. schemes 0.73 0.9 0.62
2 Agri jewel loans 150.83 167.99 168.42
3 Ware house loans 46.47 58.8 29.97
4 Agri term loans 32.44 42.33 54.24
5 Agri-working capital 5.37 14.52 14.21










72%
18%
10%
KVB India

44. 44

4.8- KEY PERFORMANCE INDICATORS
BANK
KVB
Karnataka
Rural KGB- Karnataka
KVB
Karnataka overall Division
Year FY-17 FY-16 FY-17
Growth
over FY16 FY-16 FY-17
Growth
over FY-
16
Districts covered 7 10 10 0.00% 18 18 0.00%
Branches 13 502 502 0.00% 50 52 4.00%
Total Business* 615.3801 13044.91 15395.68 18.02% 5653 5906 4.48%
Total Deposits* 369.8789 7638.12 9632.525 26.11% 3581.96 3738 4.36%
CD Ratio 66.37 70.79 59.83 -15.48% 56.7 57.8 1.94%
Savings Bank
Deposits* 121.9962 1160.7 1444.8 24.48% 519.78 677.4 30.32%
Current Account* 30.1181 764 963.2 26.07% 245.64 299.96 22.11%
Advances* 245.5012 5406.79 5763.15 6.59% 2031.4
2161.8
9 6.42%
Non-Interest
Income* 6.3547 49.9 116 132.46% 28.76 32.62 13.42%
Profit* 11.7474 99.87 116.92 17.07% 84.27 99.4 17.95%
NPA* 1.7343 210 321 52.86% 20.33 34.79 71.13%
Per Branch
Business
Turnover* 47.33693077 26.79 30.67 14.48% 134.3 133.8 -0.37%
Per Employee
Business* 5.917116346 7.24 8.66 19.61% 12.4 12.9 4.03%
Capital
Adequacy(CAR) 10.34 10.56 11.4 7.95% 12.17 12.54 3.04%
NPA percentage 0.71% 3.88% 5.57% 43.41% 1.00% 1.61% 60.80%
*All amounts in Crores

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5. FINDINGS

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Findings based on Century Scorecard and Internal Rating System (4.6)
 KVB has failed to achieve its overall targets for “Karnataka Rural” for the financial year
2016-17 by 42.6%.
 The only Branch that achieved 80% target is Nelamangala( Bangalore Rural).
 Although there seems to be an uptick in the overall performance of Karnataka Rural in
2017-18, major contributors have been newer branches Chintamani and Gauribidanur.
 5 among the top 11 branches are falling short of targets in FY 18 which is concerning.
 Chikkabanavara is the only branch who has performed over 90% this year.
KPI Based findings and Key Insights-
 Total Business- KGB has recorded 18% growth in total business FY 17 and has
maintained a steady growth YOY of over 10% in past 5 years.
KVB has grown 5% overall in Karnataka in FY-17 and has maintained more or less the
same pace in the past 5 years in the region. Karnataka Rural’s Contribution has been
10% for the division since past two years.
 NPAs: KGB has had an alarming increase of 46% in terms of bad debt last year. Gross
NPA has gone up by more than 100 Crores in a single financial year.
The KVB Karnataka Rural branches that are facing the most challenge are Kolar Gold
Fields (56 [email protected]%), Doddaballapur (14 accounts @ 1.4%), and Hiriyur (10
accounts @ 1.2%).

Geographic Presence and coverage:
KVB does not have presence in 4 key districts where KGB has very lesser competitors-
Chamarajanagara, Chikmagalur, Kodagu and Mandya. In terms of rural coverage, KVB
has coverage only across 7 districts with 13 branches overall.
KVB has 7 branches in Bangalore rural and KGB has 41.
 Net Profits- Despite being an RRB and primary focus not into generating profit KGB is a
highly profitable bank and has grown 17% in last FY.
KVB has grown close to 18% in this parameter.Karnataka Division has contributed to
over 40% of overall profits for Pan-India and is one of the best performing regions.
Karnataka Rural has recorded a Net Profit of 11.74 Cr at 12% contribution to the
division. Hosakotte and Chandapura are the best performing branches in Rural in terms
of profitability.
Non Interest Income- KGB has made significant growth of 132% pushing over the
counter and third party finserv and product sales last year.

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KVB Karnataka Rural has focused on NII mostly selling Para-banking products, Insurance
products and income from Lockers, etc. have earned 6.32 crores in NII in 2017 and have
been the major contributor- 20% to the division.
 Net Deposits- The growth in deposits that KVB has achieved for FY17 is significantly
higher @ 26.1% than KVB that has grown only 4.36%.
KVB Karnataka Rural recorded 370 Cr. contributing 10% to the region.
 Term Deposits- Term deposit ratioislower for KVB Karnataka Rural @59% of overall
deposits compared to KGB Karnataka @75%, KVB Karnataka @74% and KVB India
@72%.
 Advances- KVB has growth rate in Advances and lending has been more or less on par
(6.4%) with KGB (6.6%). Karnataka rural recorded 245 Cr. in lending contributing 11.3%
to the region.
 Capital adequacy (CAR) KVB Karnataka rural, KVB Karnataka Region and KGB Karnataka
have maintained a healthy CAR of above 10.
 CD ratio and Bank’s Health- It has always been a challenge for banks to lend money
purely based on mobilised deposits and to maintain CD ratio below 75% (65-75 is
recommended to be ideal).
The substantial increase in deposits has increased KGB’s lending power thereby
decreasing the CD ratio below 60% in FY-17.
Karnataka Rural has maintained CD ratio of 67 overall.
There are 7 Branches who record CD above 80 which is considered to be unhealthy-
Attibelle, Chandapur, Hosakotte, Doddaballapur, Hiriyur, Gauribidanur and
Ramanagaram.
Division CD ratio for Karnataka was 57.83% for FY 17.
 Per Branch turnover and Per Employee Business- Despite being an RRB, the
performance KGB in terms of efficiency of branch and personnel has been
commendable. KGB branches average over 30 Cr in turns of turnover responsibility and
employees are generating 8.66 Cr average.
KVB Karnataka Rural recorded a per branch turnover of 47.33 Cr. and per employee
turnover of 5.91 Cr.
KVB Karnataka’s performance in this parameter has been on par with Pan-India and
recorded a per branch turnover of 134 Cr. and per employee turnover of 12.9 Cr.

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6. RECOMMENDATIONS

49. 49

Rural Housing, Infrastructure and Preferred lending partnerships
In the 2018 budget,the main focus has been towards strengthening the country's agricultural
and rural sectors, the two significant contributors to India's economy. The Budget took a wide-
angle view, attending to the Aam-Aadmi of the country. Rural people will now have more
money in hand to spend which in turn will help corporate India. The largest budget
beneficiaries are the medium, small and micro enterprises. There will be immense focus on-
Rural Housing and Rural Infrastructure. KVB should look at potential Tie-ups with Rural based
real estate companies, Infrastructure companies and Builders.
Rural Credit
The 2018 Budget also proposes to allow strong Regional Rural Banks (RRBs) to raise capital from
the market to enable them increase their credit into the rural economy.
There is a target of 11 lac Crores set for lending this year into Rural. Going forward, the new age
banks will be focusing on providing small, personal and structured loans to rural customers.
This rural income boost will improve the lending books of banks.
Leveraging Technology
In 2018 budget, there is allocation of Rs 10,000 crore under telecom infrastructure areas for
easy internet access to 50 million rural Indians. This should be leveraged by KVB’s financial
inclusion initiatives. There are still many customers who prefer offline methods and reluctant
about technology. The Telecom penetration and awareness will help KVB push its products and
service offerings like- BBPS, UPI, Mobile banking, third party products, para banking products
and increased “transaction fee” based income.
Many of the small Finance Banks have already announced their focus into rural areas going
forward and this will be achieved by the use of technology. The government’s initiatives would
be the extra boon.
Rural Banking Division
KVB’s investments into financial technology over the past few years have the potential to drive
efficiency, speed and transparency into the rural financial ecosystem. Also, there is a growing
potential and increase in awareness for Rural Banking in India.
Considering the fast paced and increasing competition from urban based private banks and
emphasis on Agricultural lending from NABARD it is high time for the bank to build a “Rural-
Banking” division that focuses on Rural Banking and its development.
Payments Banks License

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This is a great opportunity for emerging players like KVB to leverage from. The Reserve Bank in
January 2018 has granted "in-principle" approval to 11 entities this year to start Payments
Banks- Department of Post, Reliance Industries, Aditya Birla Nuvo, Vodafone, Airtel,
Cholamandalam Distribution Services, Tech Mahindra, National Securities Depository Limited
(NSDL), FinoPayTech, Sun Pharma and PayTM. Payment banking licence will allow companies to
collect deposits (initially up to Rs 1 lakh per individual), internet banking, facilitate money
transfers, and sell insurance and mutual funds. 25% of its branches must be in the unbanked rural
area.They can also issue ATM/debit cards, but not credit cards.
Achieving Profitability and Economies of Scale
KGB(RRB) as a bank probably focuses least on making Profits but this bank sets an example by
generating profits worth 116 Cr. (Profitability of 0.7%) merely focusing on their resource
strengths and hard-working staff members. This paves way to a significant amount of learning
for private banks who are looking at opportunities to penetrate the rural markets.
KVB has always focused on being profitable at both Divisional and Branch levels. Despite the
fact that 5 out of 13 Rural branches in Karnataka has failed to stay profitable in FY-17, the
branches categorized under Rural Karnataka has collectively made a profit of 11.7 Cr. achieving
the same profitability levels in comparison to Pan India and Karnataka Divisions. This clearly
indicates that streamlined efforts in terms of Financial Inclusion drives as well as focus on
turning each branch to be profitable can result in significant yield. The bank needs to focus their
investment strategically to gain economies of scale and this is very much achievable for their
rural division operations.
Geographical presence and Reach
Despite the fact the Karnataka is the 2
nd
most important region in the country for the bank, KVB
has physical presence only at 10% (52 branches) in comparison to KGB (502 branches).
The key regions needs to identified at a strategic level and they need to be supplied with their
low-cost-high-yield facilities like Ultra small branches, digital micro centers, micro ATMs and
Cash recyclers.
Non- Interest Income- Learning from the 132% growth by KGB in 2017 by pushingparabanking,
mutual Funds, Insurance and other financial services product sales last year, there seems to be
a significant opportunity for KVB.
KVB should focus on increasing NII revenue by selling Para-banking products, Insurance
products and generating more from vacant Lockers and “transaction fee” based income.
Total Business- Deposits and Lending

51. 51

KVB must invest in long term assets to improve the capital formation in the agriculture sector.
The bank needs to push Agriculture and Warehousing loans as a long term plan for future.
Since there will be a boost in job creation post this year’s budget, KVB should have dedicated
focus on growing the Personal Loans in rural sector.
Bank need to focus on easier Loan lending schemes and relax their procedure for lending and
make them more accessible for village borrowers.
KVB Karnataka Rural needs to focus on activating more term deposit accounts to better their
overall business.
Stress Accounts and Bad Loans
In this age of growing bad debts and financial scams KarurVysya bank has maintained less than
1% Gross NPA ratio in Karnataka Rural (0.71%). The total outstanding is 1.734 Crores. There has
been high focus in this regard and currently 3 amongst the 13 branches In Karnataka Rural has
recorded zero NPA which is commendable.
However the biggest challenge that needs to be addressed is the Long term overdue loans that
are lying at older branches in rural like Kolar Gold Fields (56 Accounts), Dodaballapur (14
accounts), etc.
KVB Pan India has an NPA ratio of 3.88% and Karnataka at 1.6%.
Some of the best banks in terms of maintaining low NPA have been YES Bank (<1%), Axis Bank
and ICICI bank (combined 7.9%).

The worst performers in this category have been SBI, PNB, Bank of India, Bank of Baroda( all
above 20%) and IDBI Bank, Indian Overseas Bank, UCO Bank, Bank of Maharashtra, Central
Bank of India, Dena Bank, United Bank of India, Corporation Bank (all above 15%).
Offline Marketing Events, Activities and Campaigns
Aggressive offline marketing campaigns and spending is required in the region to make
different financial products easily accessible to the consumers. Private small finance banks have
reported to have had as much as 30% Response rates from their rural target population in
terms of Account Registration post organised events and. Rural customers usually look out for
value based deposit schemes for their money.
Training and Hiring

52. 52

KVB needs to focus on Intense training and empowering of the entire staff and team members
in rural branches to improve selling bank’s product offerings.
There has been a misconception in Rural Karnataka about the bank itself as a “Tamilians” Bank
due to their Origins based in Karur, Tamilnadu. This adds to a negative sentiment among
customers due to the Kaveri Issue. Hence it would be a wise choice to appoint and hirelocal
staff members who can communicate well in Kannada language for their customer facing roles.
Attracting Investments
Participation and investment by the richer segment within the rural population in the buying of
equity and shares with the bank can be encouraged.

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7. CONCLUSION
The Indian Rural Customer needs to avail full benefit of our banking system without any
hesitation. People in rural areas require a mechanism to keep their limited resources safely,
credit to meet emergencies, credit for micro enterprises, facility to receive remittance, etc.
They require a hassle free access to the required financial services. But due to the low level of
penetration of even the best banks in the country and lack of awareness, people end up
resorting to borrowing from Loan Sharks/ micro-financiers and informal credit providers.
Regional Rural Banks have been servicing the rural sector well with respect to some of the most
important indicators and have certainly performed better than many of the commercial banks
and even cooperative banks. Banks like KaveriGrameena Bank and other profitable RRBs have
set a great example in creating sustainable business models around catering some of the most
impenetrable, mundane and financially excluded segments of our population in the last 30
years.
RRBs have certainly performed better in terms of providing loans for personal and businesses-
agriculture, small and retail traders and also non-farm rural businesses. They have taken a
leading role in financing Self-Help Groups (SHGs) and Financial Inclusion initiatives. RRBs have
also shown excellence in selling third party products and services through their outlets and
generating high amount of NII revenue in commissions and premiums.
KarurVysya Bank is a great organisation that has built strong foundation in terms of both its
customers as well as sustainability to build the world class organisation that it aspires to be.
Keeping the conventional banking wisdom in check KVB have been always been impressive and
adaptive in terms of innovation and changing technology. KVB has an immense opportunity to
capitalise this year in terms of penetrating the rural. This study has aimed at providing a deeper
understanding of the scope of rural expansion and identifying the gaps in their opportunity
through competitor benchmarking.
Taking into consideration Arun Jaitley’s 2018 budget, the amount of focus and cash flow on
rural development that that is bound to take effect and the leverage that is offered to private
banks will be significant. With fast paced increase in mobility and connectivity, our rural
financial inclusion initiatives will pick pace even faster.
The scope of this research has been such that KarurVysya Bank can now utilise the learning
outcome of our study to fine-tune their strategy at both product level as well as market-level at
a scale that would enable the region to improve their services and focus their efforts as a
stepping stone to their higher ambitions.

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LEARNING OUTCOME
Below are some of the key takeaways that I’ve gained from this internship.
 Integrating theory and practice: The biggest learning that I gained from this internship
is how much I learnt from my classroom is relatable to the world of work. It has been a
great experience to have had the opportunity to apply my textbook learning concept
into a practical scenario.
 Subject knowledge: This internship exercise has been substantial in contributing
immense amount of knowledge, understanding and insights into one of the most
trending topic in the Indian commercial banking system- rural banking.
 Career: This internship opportunity helped me explore my career path into banking
prior to graduation.
 Skill development:This opportunity helped me get better at organising and analysing
data, records and budgets.
 Personal development: This opportunity helped me identify clear examples of
leadership styles that promote good working relationships. It was a great experience to
learn how leaders deal with pressure and yet manage to maintain good work
environments. I also learnt the importance of effectively communicating knowledge and
asking intelligent questions to supervisors, peer members and even strangers. I also
developed strong work habits and attitude necessary for job success.
 Identifying competencies:As a student this has been a great experience in learning how
to apply financial information and data into strategy formulation and future decision
making. I believe that every student should focus on acquiring experience that is
relevant to their strengths, skill set and competencies.

55. 55




ANNEXURE

56. 56

57. 57

58. 58

Balance sheet of KVB

Mar'17 Mar '16 Mar '15 Mar '14 Mar'13


12 mths 12 mths 12 mths 12 mths 12 mths
Capital and Liabilities:
Total Share Capital 121.86 121.86 121.63 107.18 107.18
Equity Share Capital 121.86 121.86 121.63 107.18 107.18
Reserves 4,913.83 4,451.09 4,124.40 3,219.16 2,978.01
Net Worth 5,035.69 4,572.95 4,246.03 3,326.34 3,085.19
Deposits 53,699.81 50,078.90 44,690.27 43,757.68 38,652.98
Borrowings 1,695.65 1,573.24 2,900.75 3,293.31 3,999.34
Total Debt 55,395.46 51,652.14 47,591.02 47,050.99 42,652.32
Other Liabilities & Provisions 1,376.46 1,438.63 1,315.42 1,165.82 995.82
Total Liabilities 61,807.61 57,663.72 53,152.47 51,543.15 46,733.33

Mar '17 Mar '16 Mar '15 Mar '14 Mar '13


12 mths 12 mths 12 mths 12 mths 12 mths
Assets
Cash & Balances with RBI 2,790.47 2,529.06 2,692.92 2,546.20 1,628.64
Balance with Banks, Money at Call 1,554.62 262.54 56.17 132.03 167.38
Advances 40,907.72 39,084.38 36,108.94 33,992.13 29,480.13
Investments 14,857.48 13,221.67 12,773.01 13,247.00 13,837.26
Gross Block 410.94 416.54 394.51 375.94 320.41
Net Block 410.94 416.54 394.51 375.94 320.41
Capital Work In Progress 7.67 3.58 16.66 8.76 1.7
Other Assets 1,278.71 2,145.95 1,110.28 1,241.09 1,297.83
Total Assets 61,807.61 57,663.72 53,152.49 51,543.15 46,733.35

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60. 60

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62. 62

63. 63


Qualitative interview with the branch manager
1. When was the branch established?
2. Could you share some of your experience in rural
banking since taking charge here?
3. What challenges did you face as a manager in dealing
with the rural customers?
4. What is the technological awareness level/ challenges
of your customers?
5. How many of your customers belong to the farming
category and how often do they make use of the
products and services made available to them?
6. What actions do you propose to mobilize the funds of
financially stable rural communities in your region?
7. What is the awareness/ acceptance level of other
commercial banking products such as insurance,
mutual funds etc among the rural customers in your
branch?
8. How efficient is the banks product portfolio to cater
to the needs of rural population profitably?
9. How do you propose to financially include the
unbanked rural poor with the existing product
portfolio in your bank?

64. 64

References
http://www.kvb.co.in/
http://www.kvb.co.in/agriculture/agricultur
e.html
http://www.kvb.co.in/pdf/kvb_investor_pre
sentation_dec_2017.pdf
http://www.moneycontrol.com/
http://www.moneycontrol.com/annual-
report/karurvysyabank/directors-
report/KVB#KVB
http://shodhganga.inflibnet.ac.in/bitstream
/10603/120906/9/09_chapter%201.pdf
https://www.microfinancegateway.org/sites
/default/files/mfg-en-paper-harnessing-
rural-banking-potential-in-india-expanding-
scope-scale-of-innovative-concepts-
programs-oct-2010.pdf

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https://www.thehindubusinessline.com/200
4/04/20/stories/2004042000080900.htm