The 45% Approval Bank: Why KVB Is Saying No More Often
Karur Vysya Bank (KVB) was named Best Small Bank in the BT-KPMG Survey of India’s Best Banks and NBFCs. The 110-year-old private sector lender has built its recent track record on operational technology, tighter credit controls, and a deliberate shift in its lending mix.
Ramesh Babu B, Managing Director and CEO, sums up the approach plainly: “Success is not owned; it is rented.” The bank operates on three stated priorities — business growth, asset quality, and profitability — and the numbers from FY25 and the first three quarters of FY26 reflect that consistency.
Operations & Technology
KVB has been deploying AI across its back-office and credit functions. On the operations side, the key change has been in voucher processing. Branches now scan vouchers and route them to a centralised unit, where they are read and transactions are matched with the core banking system using AI-led checks. This has removed the need for manual entry at the branch level and reduced reconciliation gaps.
The improvement in straight-through processing from 5% to 50–55% is a direct result of model refinement over time. The initial low rate was largely driven by handwriting variability and inconsistent document formats across branches. As the system processed more data, accuracy improved.
The bank is also looking at AI for customer profiling and identifying product needs earlier in the lending cycle. The focus, as Babu describes it, is on accuracy and efficiency rather than scale for its own sake.
Financial Performance & Strategic Direction
In Q3 FY26, KVB reported a net profit of ₹690 crore, up 39% year-on-year. Net interest income rose 14.6% to ₹1,239 crore, supported by a 17% increase in loans. Commission and fee income grew 15.15% to ₹266 crore. For the full year FY25, profit grew around 21%, and the bank has maintained that trajectory into FY26.
On deposits, around 20–25% were repriced in Q3, which brought deposit costs down by roughly 22 basis points and overall cost of funds by about 16 bps. Net interest margin came in at 3.99%, a marginal compression of 5 basis points.
The lending mix has shifted materially. Corporate loans, which were around 35% of the book, are now in the mid-teens. The bank has moved toward retail, agriculture, and MSME — the RAM segment. Gross NPA has declined to 0.71%; net NPA stands at 0.19%. Loan approval rates have dropped from over 90% to around 45%, reflecting tighter underwriting rather than lower origination activity.
Capital adequacy is at 16–17% and is expected to move toward 18% as profits are retained. Return on assets has been above 1.7% for the past two years. Stress levels in digitally originated portfolios are lower than those in older vintages. The bank is opening roughly 50 branches a year, focused on new districts in southern India, and is also growing through co-lending and business correspondent tie-ups in segments like affordable housing and microfinance.
Leadership & Ownership
KVB’s board has recommended the reappointment of B. Ramesh Babu as MD & CEO for a third term of two years, effective July 29, 2026, pending approval from the RBI and the bank’s shareholders. His current term ends July 28, 2026. The continuity in leadership is consistent with the bank’s stated focus on long-cycle outcomes — the same priorities of growth, asset quality, and profitability that have guided strategy over the past several years.
On the ownership side, there has been a development at the institutional level. In February 2026, RBI approved ICICI Prudential Asset Management Company (ICICI AMC), along with group entities of ICICI Bank Limited, to acquire an aggregate holding of up to 9.95% of KVB’s paid-up share capital or voting rights. The approval is a renewal — an earlier approval from December 2023 had lapsed, and this is the fresh sanction under similar terms.
The ICICI AMC approval is a regulatory disclosure rather than a strategic event for KVB directly, but it signals continued institutional interest in the stock. The bank’s capital position, asset quality, and earnings trajectory have made it a relatively stable holding in the small bank category.
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Windmill Capital Team: Windmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645) based in Bengaluru at No 51 Le Parc Richmonde, Richmond Road, Shanthala Nagar, Bangalore, Karnataka – 560025 creating Thematic & Quantamental curated stock/ETF portfolios. Data analysis is the heart and soul behind our portfolio construction & with 50+ offerings, we have something for everyone. CIN of the company is U74999KA2020PTC132398. For more information and disclosures, visit our disclosures page here.
