Show me a sector which has all the ingredients of disruption, digitisation, consumption, retail, national presence, technology, and more importantly, access to billion customers. It is the age old sector that we all know as banking. Despite its potential, investors will be surprised to know that banks have been the biggest wealth destroyers in the last six years. Yes, we are talking of public sector banks. Although in the bull run of 2003-2007, these public sector banks were the biggest wealth creators, but as they expanded, opened up a lot of branches, added many new accounts, upgraded their technology, they turned out be wealth destroyers due to mismanagement, greed and corruption. The biggest beneficiaries were the private sector banks who made the most of the failures of these public sector banks. They understood the forthcoming growth opportunities, saw millions of unbanked customers in rural, semi urban and urban centres and demand from corporates. With a tight control of disbursement, professional management, superior technology, excellent service and above all nil political interference, the private sector banks have been the biggest wealth creators in the last decade. Plus there is no denying the fact that these banks will continue to call the shots in the banking space for times to come. There have been various reports suggesting that the Indian banking industry could become the fifth largest banking sector globally by 2020 and possibly the third largest by 2025. The shift from cash to cashless economy, which is currently taking place, will drive growth in many sectors. Banks are likely to emerge as the biggest beneficiary from this disruption as people in rural areas who went to money lenders for their needs can now use the network of banks for their personal, home and agriculture needs. The sector is also expected to create a large number of jobs driven by the efforts of the Reserve Bank of India and the government to provide access to financial services to people in rural areas. Apart from jobs, the banking industry will give a boost to the banking assets and improve the mortgage business in a big way by adopting the low cost smaller branches model.
The shift from cash to cashless economy, which is currently taking place, will drive growth in many sectors. Banks are likely to emerge as the biggest beneficiary from this disruption as people in rural areas who went to money lenders for their needs can now use the network of banks for their personal, home and agriculture needs.
Karnataka Bank is one of the more savvier private sector banks, with a pan India presence, with more than 700 branches and 1,300 ATMs. It has equally distributed itself among the rural, semi urban, urban and metro segments, reaching more than 7.5 million customers. Karnataka Bank has adopted the latest software technology and its thrust on the MSME segment will turn out to be the main driver of future growth in the future. The management is also trying to improve its net interest margin (NIM) and solve the non performing assets (NPA) issue and make the balance sheet healthy. With improved performance, Karnataka Bank can turn out to be a winner in the future and the stock currently quoting at Rs 135 can give a 40% price appreciation in the next 18 months.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.