Karur Vysya Bank Ltd Management Discussions

Global Economy Overview

The global economy remained stable in 2024, growing at 3.3%. As a result of coordinated monetary tightening from major central banks in the world, inflation started returning to the target zone. In fact, as a result of disinflation and concerns regarding growth, major central banks in the developed countries pivoted rates and further cut them to provide impetus to flagging growth. However, growth and the last-mile inflation remained divergent across geographies. The US economy expanded at a better-than-expected 2.8%, while China lagged with a 5.4% growth.

The year 2024 was also the year of elections. The US saw a change in the leadership and subsequent trade wars dragged the world into uncertainty in early 2025. The tariff-related disruptions, along with the geopolitical uncertainties such as the wars in Europe and the Middle East, remain major risks to inflation and the world growth outlook.

Outlook

The IMF projects the global growth at 2.8% for 2025 and 3% for 2026 due to the tariff-related trade disruption following change in US presidential leadership. This is still below the historical average of 3.7% (2000-2019). Global headline inflation is expected to decline to 4.3% in 2025 and to 3.6% in 2026. However, different Central Banks may adopt different paths of monetary easing depending upon growth and the last bit of sticky disinflation trajectories.

Indian Economy Overview

India continues steady march towards becoming the third-largest economy in 2030. It remains the fastest-growing large economy in the world for the 5th consecutive year, though the growth is expected to decelerate to 6.5% in FY 2024-25 on a large base of 9.2% in the previous year. The slowing growth rate is following a slowdown in investment and weak manufacturing growth. However, service activity has been steady, while growth in the agricultural sector has recovered. Private consumption growth has remained resilient, primarily driven by improved rural incomes accompanied by a recovery of agricultural output. In contrast, higher inflation and slower credit growth have curbed consumption in urban areas.

Outlook

The RBI expects the Indian economy to grow at 6.5% in FY 2025-26. The reduction of income tax in the budget will encourage consumption as well as investment and buoyant agricultural production will aid strong rural growth.

INDUSTRY OVERVIEW Indian Banking Industry

Bank Credit slowed down to 11% year-on-year (YoY) for FY 2024-25 from 20.2% in the previous year. The slowing growth is attributed to the high cost of credit and tightening of regulatory norms by the RBI and subsequent impact on NBFCs and retail lending, while the industrial sector witnessed muted growth during the year.

Bank deposit went up 10.3%, in line with the credit growth during the year.

Asset quality in the sector remains strong with the GNPA ratio of the scheduled commercial banks at multi-decade low of 2.3% as of March 2025 while the Net Non-Performing Assets (NNPAs) decreased to 0.5%, marking an all-time low. This decline was attributed to lower slippages, effective recoveries throughout the year and consistent write-offs .

Government Initiatives

The Union Budget for FY 2025-26 has continued emphasis on accelerating growth, ensuring inclusive development, encouraging private sector investments, boosting consumer confidence and enhancing the spending power of Indias rising middle class. The efforts have been concentrated on increasing investments in physical and social infrastructure to stimulate overall growth. Following are the key announcements made in the Budget for FY 2025-26:

The expansion of the Credit Guarantee Fund for MSMEs (CGTMSE) and startups will lead to increased demand for bank lending. The credit cover for micro and small enterprises has been doubled from 5 Crore to 10 Crore, which could lead to demand for over 1.5 Lakh Crore in credit over the next five years. For startups, the cap has been raised from 10 Crore to 20 Crore, with reduced guarantee fees for loans in 27 focus sectors.

The Kisan Credit Card (KCC) loan limit has been raised from 3 Lakh to 5 Lakh, which is expected to drive agricultural loan growth. As of March 2024, KCC loans stood at 9.81 Lakh Crore across 7.75 Crore accounts.

The Central Governments infrastructure capex for FY 2025-26 is budgeted at 11.2 Lakh Crore. This figure reaches around 19 Lakh Crore, considering the capex by the public sector enterprises and also the grants which the central government gives to the states for capital expenditure. Over the last five years, capital expenditure has witnessed a strong compound annual growth rate (CAGR) of 27% with a notable focus on sectors like housing, roads, railways, defence and solar. An increase in capital outlay would support credit growth in the banking sector. The income-tax rebate for individuals earning up to 12 Lakh annually will likely drive consumption and support credit and deposit growth in the process.

Regulatory Landscape

The RBI began cutting rates from February 2025, for the first time in five years, as inflation stayed within the RBIs comfort zone. The MPC reduced the REPO rate by 25 bps in February 2025, followed by another 25 bps cut in April 2025, and then implemented a decisive 50 bps cut in June 2025, bringing the REPO rate to 5.5% while maintaining a neutral stance. The CRR has been proposed for a cut to 3% in four equal tranches spread till November, 2025. These actions will boost investor confidence, encouraging borrowing and stimulating economic activity.

On January 27, 2025, the RBI announced measures to inject liquidity into the banking system, including OMO purchases, variable rate repo auctions and US$/INR Buy/Sell SWAP auctions.

The easing monetary conditions are expected to provide impetus to borrowing and subsequent economic growth.

During the fiscal year, the RBI came out with various circulars and directives. These include amendments to KYC guidelines, directives for supervised entities to review Gold Loan Policies, and updated guidelines for credit institutions and credit information companies. Additionally, the RBI has issued a draft circular on forms of business and prudential regulation for investments, targeting banks, NBFCs, and financial holding companies to eliminate potential regulatory arbitrage. It also issued Internal Risk Assessment guidance for money laundering/terrorist financing risks.

The RBI is broadening its responsible lending conduct norms to include loans to micro and small enterprises (MSEs). This move aims to ensure that lending practices are fair and transparent, thereby protecting the interests of small borrowers.

To reduce the risk of incorrect credits and related fraud, the RBI has issued new directives for Unified Payments Interface (UPI), Real-Time Gross Settlement (RTGS), and National Electronic Funds Transfer (NEFT) payments. These measures are expected to enhance the security and reliability of digital payment systems.

In a proactive step to address climate-related financial risks, the RBI has proposed the creation of the Reserve Bank Climate Risk Information System (RB-CRIS). This system will provide high-quality, standardised climate data to help financial institutions manage climate risks effectively.

Deposits of 3 Crore and more are considered as bulk deposits for SCBs and small finance banks. Differential weightage for Priority Sector Loans (PSL) in districts: Banks will receive a higher weightage (125%) for incremental PSL in districts with lower per capita PSL (less than 9,000) to incentivise lending in these areas (effective from FY 2024-25). Conversely, they will receive a lower weightage (90%) for incremental PSL in districts with higher per capita PSL (more than 42,000) to discourage excessive concentration in already well-served areas.

Growth Propellers effi have been three key growth Demand, propellers for the Indian banking system. With the expanding income and aspirations of the Indian middle class, there is a growing potential for increased savings and demand for credit among the people and this is expected to create a sizeable market for banks and financial institutions. Robust demand for financial services, coupled with ongoing innovation in banking services, will drive adoption and usage.

By prioritising mobile-centric customer experiences, banks can streamline banking processes. Services such as Anywhere Banking, WhatsApp Banking, AI chatbots, and user-friendly mobile applications enable banks to extend their financial services while improving customer satisfaction. Open banking provides another unique collaborative opportunity to Indian banks where they can securely share the customer financial data with consent and monetise their APIs to deliver personalised services.

Over the past several decades, the banking sector has been at the forefront of technological adaptation. Now in the world of Artificial Intelligence, banks are fast adopting automation to enhance human decision-making and operational efficiency. The use cases for Machine Learning and Artificial Intelligence in India include credit underwriting, recommendation systems, liquidity management, fraud detection and prevention, regulatory capital planning, risk assessment and management and chatbots among others. Banks have also adopted robust governance framework and a code of conduct to manage AI related risks.

Industry Outlook

Various rating agencies expect a credit growth of 10% - 13% in FY 2025-26 with GDP growth tapering, tight liquidity conditions, muted deposit growth and high loan to deposit ratio as a key risk to credit growth.

COMPANY OVERVIEW Company Background

Karur Vysya Bank (hereafter referred to as ‘KVB or ‘your Bank) has built a strong reputation as a trusted banking institution over more than a century. Established in 1916 by Shri M. A. Venkatarama Chettiar and Shri Athi Krishna Chettiar, KVB has successfully met the financial needs of merchants and agriculturists. Over the years, your Bank has transformed into a leading financial institution, excelling in Commercial Banking, Retail Banking, Agriculture, Corporate/Wholesale Banking and Treasury. Bank has consistently pioneered use of technology to enhance customer service while retaining a personal touch with customers.

As of March 31, 2025, KVBs network includes 888 branches and 2,252 ATMs/BNRMs across India, serving over ten million customers. Our wide range of customised products and services continues to meet diverse customer needs.

Mitigations for Weaknesses and Threats

Regional Concentration & Low Visibility Beyond South and West Markets: The Bank is consistently enhancing its digital presence, expanding non-branch distribution channels, and focussing on partnerships for lending to acquire customers in unpenetrated markets. Additionally, the Bank is considering increasing its presence in other potential markets and leveraging its niche market presence for maximum advantage. Initiatives to improve digital penetration and co-lending through NBFCs/ Fintechs are helping the Bank to expand its footprint in regions where its network is not well-established.

Limited presence in NRI segments/Wealth management Services: The Bank is envisioning an enhanced NRI Business outreach strategy aimed at acquiring New NRI Business with customised offerings while focussing on select geographies. Dedicated resources will be deployed for NRI Business development. The Bank foresees momentum for this business picking up from the current numbers. Further, the Bank plans to launch wealth management for HNI customers in select geographies. As a strategic move, the Bank has partnered with a leading wealth management service provider to build up its Wealth management business.

Rising Competition from Bigger Banks in the Hinterland:

The Bank continues to focus on commercial banking business, including MSME, considering satisfactory performance of the portfolio and higher yield and collateral coverage. The Bank is using its wide presence to handhold MSMEs by offering digital lending process enabling early disbursal of the loans. Your Bank is also utilising its diversified marketing channels including branch and feet on street channels for improving the MSME business.

The Bank is adopting an omni-channel approach to enhance client experiences and attract new customers. It is enhancing its digital capabilities and continuously improving customer experience across all channels, focussing on ease of banking.

Challenges in Improving Operational Efficiency Due to Contraction in NIMs: The Bank is focussing on improving CASA deposits through a dedicated acquisition team targeting corporate salary segments, TASC segments, and government business segments. Credit verticals will also focus on high-yielding assets without compromising asset quality. The Banks continued to shed low-yielding corporate advances on one side and focus on better-yielding granular secured advances in the RAM (Retail, Agriculture and MSME) sector and prudent treasury operations have enabled retaining the NIMs above 4% levels despite 42 BPS increase in the cost of deposits during the year.

Exposure to Negative Economic, Political, and Social Developments in the Southern Region: The Bank continuously monitors and assesses potential risks arising from socioeconomic-political developments in the Southern Region and proactively works out appropriate mitigation measures.

Tamil Nadu, Karnataka, Andhra Pradesh, Kerala, and Telangana collectively contribute 30% of Indias GDP. Tamil Nadu is the largest contributor, adding 24 Trillion to the nations economic growth. Karnataka follows with 22 Trillion, Telangana with 13 Trillion, Andhra Pradesh with 13 Trillion, and Kerala with 10 Trillion. Tamil Nadu has consistently outperformed the national average in terms of economic growth. The states economy is diverse, with significant contributions from manufacturing, services, and agriculture sectors. It has a strong automobile industry and also excels in textiles, leather, and electronics manufacturing. Your Bank has a large presence in the State and expects its growth in tune with the growth of the State.

Data Breaches: The Bank has implemented several controls to prevent or detect data breaches, including:

Perimeter security controls such as network firewalls, web application firewalls, network intrusion prevention, network segregation, and network behaviour analysis and anomaly detection systems. Privileged access management control. Host-based intrusion prevention systems to automatically detect and prevent known vulnerabilities.

24x7 security monitoring to identify unusual security events in the banks IT environment and timely incident response actions. Periodic management and Board oversight to review control effectiveness and strengthen controls.

Financial Overview

During FY 2024-25, your Bank recorded a Net Profit of 1,942 Crore, marking the highest post-tax income ever achieved in banks history. This milestone is a testament to our sustainable growth strategy, responsible Banking practices and Prudent risk Management. Banks total business reached 1,86,569 Crore, marking a significant increase of 14% from the previous financial year.

(in Crore)

Particulars	FY 2023-24	FY 2024-25	% Change
Total Business	1,63,536	1,86,569	14
Net Interest Income	3,818	4,260*	12
(1)
Other Income (2)	1,649@	1,829	11
Other Income (excluding one off item for the FY 2023-24)	1,492	1,829	23
Total Income (1+2)#	5,468	6,089	11
Net Income from	3,854	4,351	13
Advances and Others
Net Income from	1,614	1,738	8
Treasury Operations
Operating Expenses	2,639	2,877	9
Operating Profit	2,829	3,212	14
Provisions	729	621	(15)
Profit Before Tax	2,100	2,591	23
Tax	495	649	31
Net Profit	1,605	1,942	21

* Credit card income of 9.93 Crore (Previous Year 9.22 Crore) has been reclassified under Interest income from Non-interest income during the FY 2024-25, Accordingly previous year figures have been restated. @ As per RBI Master Direction-(Transfer of Loan Exposures) Directions, 2021 SR investments more than 8 years have to be classified as Loss assets - Non-Performing Investments (NPI). As per RBI Direction on Financial Statements - presentation and disclosure (30.08.2021) depreciation on investments have to be classified under other income. During the Previous year ( i.e., FY 2023-24), we have reversed 157 Crore of such SR investments provision resulting in increase in other income and treated the same amount as provision for NPI under provisions. However, there is no effect on net profit.

#Total Income is the sum of Net Interest Income and Other Income.

Banks Total Deposits grew by 15% during FY 2024-25 over the previous year to reach 1,02,078 Crore, driven largely by increase in Term Deposits by 20% to 74,246 Crore. The Demand and Savings Deposits grew by 1% and 4% respectively and the total CASA moved to 27,832 Crore from the previous year level of 27,085 Crore.

Your Banks total advances witnessed 14% year-on-year growth, with most of the credit verticals equally contributing to this expansion. We will continue to concentrate specifically on expanding our retail segment and small-ticket commercial advances. This initiative involves establishing specialised units dedicated to these segments.

Total Advances during FY 2024-25

(in Crore)

Vertical	FY 2023-24	FY 2024-25	% Change
Commercial	25,449	30,730	21
Retail	17,662	20,896	18
(Personal Banking)
Corporate	13,949	12,047	(14)
Agriculture	17,363	20,818	20
Total Advances	74,423	84,491	14

Capital Management

Your Bank maintains a robust capital position, with an overall capital adequacy standing at 18.17%, significantly exceeding the minimum requirement of 11.50% as mandated by the RBI. As of the end of FY 2024-25, the ratio of Risk Weighted Assets ant changes in the key financial (RWA) to Total Assets reached 56%.

Financial and operating ratios

Your Bank registered decent growth in Net Interest Income and Other Income, contributing to the growth in Total Income. We witnessed significant including Return on Assets, increasing to 1.72% from 1.63% in FY 2024-25, Return on Equity rising to 16.28% from 15.98% in FY 2024-25 and Basic EPS to 24.13 from 19.99.

(in Crore)

	FY 2023-24	FY 2024-25	% Change
Book Value ( )	122.42	145.57	19
Cost of Deposits (%)	5.19	5.61	8
Yield on Advances (%)	9.95	10.15	2
Yield on Funds (%)	8.68	8.93	3
Cost of Funds (%)	5.23	5.61	7
Net Interest Margin (%)	4.19	4.09	(2)
Cost to Income (%)	48.26	47.25	(2)

Details of change in Return on Net worth as compared to the immediately previous financial year and reasons thereof

The Return on Net worth / Return on Equity grew from 15.98% as on March 31, 2024, to 16.28% as on March 31, 2025, owing to growth in Net Profit.

Reason for significant changes (i.e. change of 25% or more as compared to the immediate previous financial year) in key financial ratios

There were no for the FY 2024-25 compared to FY 2023-24.

Medium and Long-term Strategy of the Bank

While discussing your Banks strategy not only for the current financial year but also the next five years, Bank is clear that it needs:

The Banks strategy is to deliver consistent financial performance, by providing superior services to the targeted group. The Bank will: Offer clients financial solutions/products/services, with continuous focus on southern and western markets and target retail and commercial business customers.

COMMERCIAL BANKING GROUP (CBG)

Overview

Commercial Banking Group (CBG) has done digital transformation by implementing end-to-end digitised, paperless loan sanction processes through its Loan Origination System (LOS), enhancing MSME customer experience with faster turnaround time and integrated digital services via API interfaces with GST, Aadhar, Udyam, and CIBIL. The Group has introduced a Lead Management System (LMS) in November 2024 to streamline customer lead tracking and to boost MSME advances, while also partnering with the Reserve Bank Innovation Hub for the Unified Lending Interface (ULI) to facilitate seamless credit delivery.

The commercial business segment grew from 25,449 Crore in March 2024 to 30,730 Crore in March 2025 registering 21% Y-o-Y growth, and accounted for about 36% of Banks advances.

Outlook

Your Bank is undertaking targeted business expansion with the identification of 24 branches in high-potential geographic areas based on CIBIL bureau data.

The Bank is also undertaking a strategic workforce expansion to achieve the estimated MSME business growth to meet the aggressive growth objectives while maintaining high standards of service quality and portfolio health.

CONSUMER BANKING DEPARTMENT (CBD)

Overview

Your Bank caters all the Banking Requirements of individuals through Consumer Banking Department (CBD). To accelerate growth in its Retail Business, your Bank has formed two verticals under CBD viz., Retail Assets and Liabilities. In order to expand the horizons beyond the command area of the Bank, the Retails Assets vertical is functioning through both Branch Channel and Open Market Channel (OMC).

Provide efficient and competitive services leveraging digital channels with a focus on improving the market share of the Bank and follow policies to attract young customers and to sustain the granular growth by optimising the balance sheet, improving CASA to 30% levels, and maintain ROA above 1.60% levels.

Retail Assets

Your Banks Retail Portfolio grew by 18% over the Year, with a net increase of about 3,234 Crore. This brought the Retail Advances Portfolio to 20,896 Crore, making up about 25% of Banks total Advances.

Performance of key products in Retail Assets during FY 2024-25:

Product	Portfolio Size	Growth over
	( Crore)	FY 2023-24 (%)
Home Loan	8,457	12
Mortgage Loan (LAP)	5,499	34
Jewel Loans	3,455	61

Retail Liabilities

Overview

Liability Business of the Bank constitutes 55% of the total business of the Bank. It has formed exclusive sales teams to focus on New to Bank (NTB) client acquisitions with a focus on each segments viz., Mass Banking Channel, Business Banking Channel, Corporate Salary Channel, Priority Channel, Government Banking, Institutional Banking and Relationship management channel to nurture the relationship and grow the liabilities franchise of the bank. The vertical also fosters new alliances in fintech and payment industry in developing solutions to launch new products and refine existing ones to be ahead of competitive offerings and meet customer expectation.

Outlook

KVB is set to launch a comprehensive solution for Loan against Mutual Funds, with end-to-end digital process. It aims to be the first in the industry to introduce co-branded credit cards in the current fiscal year, targeting High Net Worth Individuals (HNI) and affluent customers. The focus will remain on high-yielding products such as Gold Loans and Loan Against Property (LAP), while expanding the product portfolio by venturing into Affordable Housing and Micro LAP to sustain overall portfolio yields. Additionally, the Bank plans to engage diverse customer segments by offering tailored products to boost the acquisition of New-to-Bank (NTB) customers.

Increasing the product range under Affordable houses, Properties under Gram Panchayat, B-Khata, Low LTV, Liquid Income Program, etc., based on the potential and merits. Co-lending arrangements & New partnerships to improve the revenues.

Integration of Small and Medium Business Acquisition and Relationship Team (SMART) into Retail Assets.

Deposit Portfolio

	FY 2023-24	FY 2024-25	% Change
Demand Deposit	8,283	8,353	1
Savings Deposit	18,802	19,479	4
CASA	27,085	27,832	3
Term Deposit	62,028	74,246	20
Total Deposit	89,113	1,02,078	15

Demat Services:

Your Bank has registered with National Securities Depository Limited as a Depository Participant (DP) and is offering demat services to the participants in the securities market. The Bank has also tied up with M/s IDBI Capital Markets & Securities Ltd., M/s Religare Securities Ltd., M/s SMC Global Securities Ltd., and M/s Geojit Financial Services Limited for providing trading facilities.

Para-banking:

Your Bank has multiple partners in each of the lines of insurance business as permitted in the open architecture model by the regulator, with 4 partners in Life, 3 partners each in General & Health insurance business. Your Bank is building a comprehensive wealth management service in line with new-age banking players offering Portfolio Management Service (PMS), Alternate Investment avenues such as Equities, Debt, Equity Basket and ETF offered by our channel partners of such offerings.

Government-Sponsored & Pension Schemes

Bank offer various government-sponsored schemes (from Pension schemes to Insurance schemes) to cater to the needs of a wide range of people for social security.

Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)

The PMJJBY is a one-year life insurance scheme, renewable from year to year, offering coverage for death due to any reason and is available to people in the age group of 18 to 50 years (life cover up to age 55) having a savings bank account who give their consent to join and enable auto-debit. Bank has enrolled 1,05,130 customers under this scheme.

Pradhan Mantri Suraksha Bima Yojana (PMSBY)

PMSBY aims at covering the population not covered under any other insurance plans. This scheme is available at a highly affordable premium of just 20/- per year for people in the age group 18 to 70 years with a savings bank account who give their consent to join and enable auto-debit. Bank has enrolled 3,27,632 customers under this scheme.

Atal Pension Yojana (APY)

The scheme is primarily focussed on benefiting the unorganised sector workers. Under this scheme, a guaranteed pension of 1,000/- to 5,000/- will be given to the subscriber at the age of 60 years. The pension amount depends on the contribution made by the subscriber. Bank has enrolled 5,403 customers under this scheme during the year.

National Pension System (NPS)

National Pension System (NPS) is a pension-cum-investment scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). The scheme is effective plan for the retirement through safe and regulated market-based returns. KVB is providing online NPS a/c opening through K-fintech (CRA) & Protean (CRA) and covered 2,448 customers as on March 31, 2025.

National Pension System (NPS) Vatsalya

NPS Vatsalya is a contributory pension scheme under the National Pension System (NPS) designed for Indian minor citizens (up to 18 years old). It allows parents or guardians to open and contribute to a pension account on behalf of their children, essentially creating a head start for retirement savings and financial planning. The scheme is managed by the Pension Fund Regulatory and Development Authority (PFRDA). Bank has covered 144 customers as on March 31, 2025.

Outlook

CBD-Liabilities aims to drive growth by enhancing digital banking and expanding its customer base. To boost CASA growth, we will introduce product portability to upsell products with latest features, and develop cost-efficient products for low-cost deposits. Omnichannel onboarding via DIY journeys, assisted channels, bank websites, fintech platforms, and digital marketplaces will target NTB customers, while a dedicated NRI channel will enhance INR and FCNR deposits through tailored digital solutions. Partnerships with payment stakeholders like RuPay, VISA, and Mastercard will deliver PoS, QR, and payment gateway solutions to support CASA growth. KVB will leverage a CRM tool and offer investment options like REITs, InvITs, and overseas equities to engage affluent segments. The Business Correspondent model will strengthen non-branch channels, delivering government schemes and digital products to promote financial inclusion.

AGRICULTURAL BANKING GROUP (ABG)

Overview

Agriculture, along with its allied sectors, remains a crucial part of the Indian economy, providing employment to nearly three-fourths of the population and contributing significantly to the nations GDP. India has a long-standing agricultural tradition that has evolved over thousands of years to meet the growing needs of its people. The country is also a major global player in the export of agricultural products. Your Bank offers a range of agricultural financial products, including Kisan Credit Cards (KCC), KVB Agri Infrastructure fund (KAIF), Warehouse receipt loans, loans for Renewable energy purposes, Microfinance (SHG/JLG) loans and Agriculture Gold Loans to meet both pre- and post-harvest needs of farming community, infrastructure development and related activities.

Outlook

Bank has undergone strategic transformation in recent years, revamping the loan book to focus on high-quality assets while enhancing technological efficiency. Your Bank has diversifiedthe agricultural lending portfolio by extending loans to corporate farmers microfinance loans through fintech companies, warehouse receipt loans, loans to food and agro processing industries, etc. - all aimed at strengthening our agricultural sector support while expanding our customer base.

Your Bank is implementing several enhancements to the agricultural banking services, including migration of Agri KCC and Microfinance loans to a streamlined LOS platform to ensure faster loan processing, providing specialized training for our Agri-officer and Relationship managers to ensure better marketing of loan products, offer effective customer service & enhance client relationship, implemented gold purity calibration, fraud registry validation systems, etc. Additionally, the banks is committed to introduce e-stamping for agriculture loans, enhancing recovery mechanisms for agriculture advances. These initiatives demonstrate our commitment towards leveraging technology for improved service delivery while supporting sustainable agriculture development.

CORPORATE AND INSTITUTIONAL GROUP (CIG)

Overview

CIG vertical is functioning with 9 Corporate Business Units (CBU) viz., Ahmedabad, Bengaluru, Chennai, Coimbatore, Delhi, Hyderabad, Madurai, Mumbai and Vijayawada. CBUs are headed by DGM/AGM/CM, duly supported by Relationship Managers & Credit Analysts.

CIG portfolio accounts for 14% of Banks total advances. The degrowth of 14% in the CIG book during FY 2024-25 was due to conscious reduction in the NBFC segment (degrown by 899 Crore), and also few low-yielding accounts and Precious Metal Division (PMD) business. We have concentrated on improving Banks yields and ROA rather than growing top line during the last fiscal. Banks Non-Fund Business (NFB) has grown by 28% ( 597 Crore) comparing to the growth of 12% ( 227 Crore) in the FY 2023-24. CIG asset quality has improved by keeping SMA levels intact and very minimal slippages.

Your Bank has taken a strategic decision to exit from Precious Metal Business due to low performance, high cost of operation and other contributing factors. The Bank is taking the steps to scale down the Precious Metal Business in meticulous manner considering the sentiments of the stakeholders of this business line, thereby maintaining trust and stability through the withdrawal.

Outlook

The Corporate segment will remain around 15% of the overall advances portfolio of the Bank and will continue to focus on yield & ROA rather than the topline, in the coming year. The Bank is looking to focus on the CRE segment and ticket sizes up to 75 Crore in FY 2025-26. We will continue to build NFB by focussing on infrastructure projects (such as Jal Jeevan Mission, Bharatmala Pariyojana. etc.,) in line with the Banks risk appetite. We are also exploring opportunities in the Capital market segment for NFB considering the Banks AA rating. The Bank will continue to maintain vigil on the asset quality of the Corporate Portfolio.

Within the Corporate segment, your Bank will focus on high-growth sectors such as Textiles (cotton), Real Estate, Gems & Jewellery, Renewable Energy, and Iron & Steel in the coming years to drive portfolio expansion. The revival of the Textile industry presents opportunities to deepen relationships with Existing-To-Bank (ETB) clients and attract New-To-Bank (NTB) clients. KVB has also tweaked its Commercial Real Estate product parameters to align with market trends, enhancing competitiveness. The Bank will increase export exposure in Textiles, Agri Commodities, and Chemicals to capitalise on global demand. While maintaining a granular portfolio to ensure risk diversification, your Bank will marginally grow in Non-Banking Financial Companies (NBFCs) and Financial Services (FS) sectors, wherever the risk is reasonable with good pricing, to optimise resource allocation and support sustainable growth.

TRANSACTION BANKING GROUP (TBG)

Overview

TBG specialises in Cash Management Services (CMS), offering collections, receivables and payment products for corporates of all sizes. Our electronic, receivables platform supports virtual accounts and bulk payments, streamlining financial operations TBGs comprehensive Supply Chain Finance (SCF) programmes address working capital needs within the supply chain, benefiting businesses across various industries. Bank has engaged with leading FinTech companies for expanding our reach and providing innovative financial services. Additionally, TBG is active on all three RBI-licensed Trade Receivables Discounting System (TReDS) platforms, reinforcing our commitment to excellence.

Overview

Treasury Department operates with a comprehensive scope across diverse financial instruments, including government securities, debt instruments, commercial papers, certificates of deposit, equities, mutual funds, derivatives, and foreign exchange markets. This function has continuously evolved to align business strategies with organisational objectives, optimising performance while implementing robust risk management protocols.

Outlook

The Supply Chain Finance (SCF) market is poised for robust growth, with a projected CAGR of 17% 20%, driven by increased MSME participation and enhanced fintech-bank collaborations. Digital platforms are expected to boost SCF efficiency, while anticipated RBI guidelines may further streamline operations and improve transparency. The entry of more NBFCs and FinTechs into the SCF space is pushing banks to innovate and digitise rapidly.

Similarly, the Cash Management Services (CMS) market is forecasted to grow at a 15 18% CAGR, fuelled by digital transformation and automation. Banks are competing with NBFCs and FinTechs, necessitating innovation in pricing, service quality, and technology adoption to attract high-value corporate clients. To expand the CMS customer base, we are focussing on acquiring CIG clients for mandate-based direct debits and collaborating with Retail Liabilities team to offer payment API services tailored to institutions and businesses. Customised APIs are being developed to meet individual client needs for collection and payment operations, while partnerships with FinTechs aim to adopt industry-leading practices and support CMS version upgrades.

The Banks investment portfolio remains meticulously aligned with our established investment policy framework, which prioritises three core principles: maintaining optimal liquidity, ensuring full regulatory compliance, and driving sustainable profitability.

In the falling yield scenario during the financial year, the department maintained a higher duration and capitalised on profit booking opportunities thereby generating higher interest income and profits compared to the previous year.

Outlook

Your Banks duration strategy shifted from lower yield investments to higher yield and moderately higher duration investments during the period. The declining interest rate cycle created opportunities for profit booking. Considering this trend, Bank continued to book profits at opportune times, thereby enhancing income from treasury.

The RBIs new master directions on the classification, valuation, and operation of investment portfolios now allow banks to invest in non-SLR securities under the HTM category. This change enables Bank to invest in high-quality non-SLR securities and earn higher interest income without being exposed to mark-to-market fluctuations.

The vertical continues to maintains strong relationships with existing clients while actively exploring the opportunities to offer Duration of the customised services and products to valuable clients. Additionally, there is a unified effort to onboard new customers to enhance the Banks brand visibility and market presence.

COLLECTIONS & ASSET QUALITY

Overview

Your Bank prioritises financial stability and profitability by implementing stringent measures to safeguard asset quality, reduce slippages, and enhance recovery. These include proactive monitoring, swift restructuring for stressed borrowers, streamlining recovery agency empanelment and simplified legal frameworks. Additionally, a systematised recovery process using third-party solutions tracks accounts from stress onset to resolution, enabling early default detection, triggering prompt actions and improved recovery rates, ultimately minimising slippages. Bank has maintained strong asset quality by implementing a comprehensive post disbursal monitoring system, executing timely corrective measures, and deploying enhanced recovery actions. This targeted approach has empowered us to proficiently manage risk and maintain a resilient asset portfolio.

Banks consistent efforts to minimise slippages, supported by establishment of dedicated collection teams, effective monitoring and data-driven analysis, have strengthened our capability to maintain a healthy asset portfolio. Your bank has achieved notable improvement in asset quality metrics, with decline in both Gross Non-Performing Assets (GNPAs) and Net Non-Performing Assets (NNPAs). As on March 31, 2025, the SMA 30+ accounted for 0.30% of the Advance portfolio.

We leverage specialised Asset Recovery Branches (ARB) and branch/divisional channels to expedite asset recovery, supported by two dedicated units one for legal redressal and another for asset sales. NPAs are identified and assessed as per regulatory guidelines, borrower health, market conditions and collateral value to craft tailored recovery strategies, including restructuring and legal action. Eight ARBs manage high-value NPAs across India, aided by recovery agency for follow-ups. Innovative technologies and streamlined processes enhanced our efficiency enabling swift NPA resolution and maximised loan recovery.

	FY	FY	FY	FY	FY
	2020-21	2021-22	2022-23	2023-24	2024-25
GNPA	7.94	6.03	2.27	1.4	0.76
NNPA	3.45	2.30	0.74	0.40	0.20
PCR	72.70	80.27	92.14	94.85	96.81
Credit Cost	1.47	1.26	1.45	0.65	0.71

Outlook

KVB is dedicated to accelerating NPA recovery through enhanced legal and recovery frameworks and new IT initiatives to boost transparency and efficiency. Your Bank will leverage data analytics and predictive modelling for accurate recovery predictions, strengthen external agency partnerships, and streamline collections with automated digital channels. Personalised customer communication, collaboration with credit teams for proactive account management and ongoing training for the recovery team on negotiation and empathy will drive optimal recovery outcomes.

MARKETING AND BRANDING

Marketing and branding are key pillars of Banks business growth strategy. The Bank focusses on amplifying brand visibility and aim to strengthen trust and deepen loyalty among our customers. The communication strategy is designed to cater to both traditional customers and the younger, digital-first generation.

While your Bank stays rooted in its legacy and values, it is also evolving to stay relevant and engaging across all age groups. The Bank uses a mix of print, TV, and digital platforms to promote our products and services. Flagship offerings like the DLite Mobile App and digital loan processes are featured prominently to highlight ease of use, speed, and convenience.

Apart from product promotion, the Bank also shares important customer information, such as how to e operations, adopt AI-driven c register nominee details, improve financial literacy, and rolls out extensive cybersecurity awareness campaigns to educate customers against cyber threats. These efforts reflect your Banks commitment to being a responsible and customer-focussed bank. Through consistent and thoughtful communication, the Bank continue to build a strong, trusted brand that stays relevant in a rapidly changing marketing landscape. To learn more about our marketing and branding activities, please read page 22.

OPERATIONS VERTICAL

Operations Department (OD) of the Bank oversees critical operational activities across General Banking, Digital Banking, Customer Service and the Estate Cell, ensuring Operational efficiency, and Operational Control on back offices, and enhanced customer service experience through the alternate delivery channels.

Your Bank enhanced ATM security through 24x7 centralised e-surveillance, featuring real-time monitoring, two-way communication, and Quick Response Teams (QRTs) that respond within 20 minutes to incidents like theft or vandalism. Bank has implemented Cassette swap in 98% of the ATMs as on March 31, 2025. The department shortlisted ATM managed service providers based on experience in cash management and maintenance, with monthly performance reviews ensuring maximum uptime. Cash management strategies optimised branch liquidity by utilising secured cash vans and vaulting facilities, while eight currency chests across Tamil Nadu, Andhra Pradesh, Telangana and Karnataka which ensures effective management of Cash Reserve Ratio (CRR) and adhering to the RBIs Clean Note Policy.

The department introduced Virtual Debit Cards which is presently issued to account opened through KVB Mobile application and Digital Document Execution (DDE) for Safe Deposit Locker agreements is in the final implementation stage.

Business continuity plans mitigated risks from unforeseen events, with Divisional and Central Offices ensuring rapid operational resumption. Looking forward, OD aims to digitize automation for process back-re-engineering and maintain cost efficiency while enhancing service delivery across all operational touchpoints.

Customer Service: To know how your Bank serves customers effectively, please read page 50.

INFORMATION TECHNOLOGY

KVB has restructured its IT department into three pillars to enhance governance and professionalism. These are

IT Management: Aligns IT strategy with business goals, overseeing programme governance, budgets, approvals, procurement, policies, vendor management, compliance, and audits.

IT Application: Manages software implementation, upgrades, compliance, and audits to ensure seamless application performance.

Technology: Oversees the Data Centre (DC) and Disaster Recovery Site (DRS), both equipped with state-of-the-art infrastructure in different seismic zones. The DC ensures application uptime and user availability, while the DRS focusses on backups and business continuity. A Nearline Data Centre (NDC) ensures zero data loss, supported by periodic disaster recovery drills and a robust Disaster Recovery and Business Continuity policy.

Outlook

Your Bank is committed to advancing its digital transformation to align with business goals and customer needs. Key priorities include:

Proactive Fraud Prevention: Leveraging AI and ML in EFRM to enhance fraud detection and achieve significant cost savings. DLite App Evolution: Plans for DLite Corporate (with bill payments, FASTag, and trade finance) and DLite Retail (virtual debit cards, cardless cash withdrawal, CSAT capturing). Cloud Migration: Transitioning Internet and Mobile Banking to the cloud for improved reliability, scalability, and availability. Digital Process Expansion: Implementing Insta FD, DIY journeys for current accounts and retail assets, and SOP digitalisation. Technology Adoption: The Digital Excellence team will continue evaluating emerging technologies (e.g., blockchain, AI, ML, IoT) through cost-benefit analysis and stakeholder collaboration to ensure alignment with the Banks digital strategy.

Cybersecurity and Compliance: Strengthening data protection with advanced tools, regular audits, and adherence to evolving regulations like Digital Personal Data Protection Act.

By prioritising low-resource, high-impact projects and fostering strategic partnerships with fintechs and technology providers, KVB aims to enhance operational efficiency, customer experience, and market competitiveness while mitigating cybersecurity risks. Read more about our technological prowess on page 28.

CALL CENTRE

KVBs call centre serves 24x7 one-stop contact point, seamlessly managing a wide range of customer interactions including calls, emails, chats through advanced tool like IVRS (Interactive Voice Response System). The Inbound Contact Centre ensures exceptional service by addressing queries, also by verifying transactions via the Cross Fraud portal, handling mobile number changes and gathering feedback on Doorstep Banking Services, all while maintaining strict TATs (Turn Around Times). The Outbound Contact Centre enhances customer engagement through welcome calls, tele collection (pre and post due reminders), telesales, driving product awareness, collection efficiency and revenue growth supported by well-trained agent team focussed on delivering positive customer experience.

RISK MANAGEMENT

A robust risk management system and continuous adoption of the latest initiatives ensures long-term financial security and stability. The overall responsibility of setting our Banks risk appetite and effective risk management rests with the Board / RM & ALM Committee.

Governance

The Board focusses on:

Approving and reviewing our Risk Management Framework and policies annually.

Assessing the effectiveness of risk mitigation plan implemented by Risk Management Department. Providing strategic guidance on various initiatives undertaken / to be undertaken by Bank towards management and mitigation of various risks.

Providing appropriate delegation to Top Management for planning and implementation of the Risk Management measures.

Risk Management & Asset Liability Management Committee, Board-Level Committee, plays a supportive role to the Board.

A highly experienced risk management team, with deep industry experience across key sectors and specialised knowledge in critical areas effectively oversees the Banks Risk Management function.

The risk framework lays down the following components for effective risk management: An independent risk organisation and governance structure with a clear common framework of risk ownership and accountability. Governance standards and controls to identify, measure, monitor and manage risks.

Policies to support and guide risk taking-activities across Bank. Risk Appetite Statements.

Periodic stress testing to assess the impact of adverse business conditions on earnings, capital, and liquidity.

Risk culture of the Bank:

A strong and consistent tone from the Board and Senior Management in respect of risk taking and risk avoidance in the Bank. by ethical A commitment to ethical principles as behaviour of the employees and application of ethics in business decisions.

A clear enterprise-wide acceptance of the importance of Risk Management, including ownership and accountability of various risk areas.

Bank has put in place a framework to assess the risk culture in the Bank and to promote a strong risk culture, a session on risk culture is included in training programme for all the employees. Timely flow of risk information in the organisation; Percolation of guidelines, regulations across the organisation alongside assessing its compliance.

Encouragement for the reporting of risk events, including near misses, so that appropriate lessons could be drawn from them. Simplicity in processes which can be clearly understood by all the stakeholders and not engaging in any complex structural products/ business / activities; Excessive risk taking is not acceptable to the Bank, even if it results in any benefit for the bank.

Development of adequately resourced Risk Management function and recognising the values of Risk Management skills and knowledge.

Allowing sufficient diversity of perspectives, values, and beliefs to ensure that the status quo could be challenged without inhibition.

The Whistle Blower policy encourages employees, customers and vendors to communicate any information to the Top Management without fear of reprisal.

Risk and Control Self-Assessment (RCSA): RCSA is a proactive tool in identifying lacuna, if any, in different products, processes, business activities, support functions as well as operational units of our Bank. The Bank conducts RCSAs (Risk and Control Self-Assessments) regularly to assess the level of inherent and residual risks and introduces appropriate controls, wherever necessary, to reduce the risk levels. Different processes of your Bank are studied for gaps (if any), controls available, adequacy of corresponding controls, leading and lag indicators among others and the required corrective steps are initiated by the concerned stakeholder departments based on the RCSA. The controls are frequently tested based on the level of the underlying risk and immediate steps are initiated for remediation/ improvement in case of an ineffective control.

Key Risk Indicators (KRI): Key Risk Indicators help in assessing the changes in operational risk profile and help in triggering reviews and corrective actions, if required. KRIs under key business and support functions are identified and compared with the threshold levels on a quarterly basis. The threshold levels are reviewed/new KRIs are identified periodically besides reviewing breaches if any, facilitating for taking corrective actions.

Early Warning Signal (EWS): A number of Early Warning Signals (EWS) are studied regularly, and the results are shared with concerned business verticals by the Credit Monitoring Team. Your Bank has installed specialised applications to fetch different EWS in an orderly manner. Based on the internal operational data, the Analytics department has devised a separate EWS tool which generates Early Warning Signals helping the Bank to monitor the loan portfolio effectively and maintain better asset quality.

Red Flagged Accounts (RFA): Borrower accounts that exhibit a number of EWS are Red flagged and studied in detail for a period of six months, and appropriate decisions are taken, either to lift the account from RFA or to declare the account as fraud basis the performance. Bank follows the regulatory guidelines scrupulously in these matters.

Root Cause Analysis: Root cause analysis is comprehensively carried out to study the transactions to understand the weaknesses in the system and suggest additional controls to prevent recurrence.

Whistle Blower Policy: Bank encourages employees, customers, and vendors to communicate any information they may come across about serious malpractices or impropriety/abuse of powers, etc., to the Top Management without fear of reprisal. The policy is popularised through various measures such as internal circulars, e-mail advisories, training sessions etc. to spot aberrations and deal with it at the earliest.

The Bank weighs all new products, processes & outsourcing activities both financial and non-financial, the embedded options or enhancements of the existing products critically, by the designated committees of Executives drawn from business, technology, operations, risk, legal, audit and compliance functions, before it is offered to the public to avoid systemic lacuna, if any.

The Bank has a dedicated Fraud Prevention and Management Cell (FPMC) for managing fraud risks reporting to Chief Risk Officer (CRO) of the Bank. FPMC submits reports to the Board and Senior Management Committees, periodically. Fraud detection, analysis, mitigation, and prevention are a continuous process, and our Bank follows a structured approach as mentioned in Fraud Risk Management Policy and Standard Operating Procedure (SOP). Branches / Operating units are subject to several audits, periodic visits of branches/operating units by Divisional Heads, Divisional Operating Officers, and Central Office personnel for monitoring and continuous surveillance of all operations.

During FY 2024-25, the Bank reported 26 frauds amounting to 6,531.75 Lakh, of which, 20 are Credit related frauds amounting to 6,527.58 Lakh, 3 Operations related frauds amounting to 2.08 Lakh and 3 Staff-related frauds amounting to 2.09 Lakh.

The Bank has a Fraud Risk Management Policy and standard operating procedures: (a) to detect, control, monitor and report frauds to top management, regulators, and other law enforcement agencies, (b) to ensure continuous surveillance to prevent frauds, besides managing the risk of loss arising from both internal and external fraudulent events. The macro-level guidance and directions on the above aspects is provided by the Board and committees of the Board.

The Bank is continuously taking steps in raising awareness among customers and employees about safe banking practices in the digital payment era. Several initiatives have been carried out in this regard, such as: Safety in Banking Operations Awareness: Messages are sent via SMS and emails to our customers to promote safe banking practices.

Fraud Awareness Campaign: Recent fraud incidents and safeguarding measures are communicated through emails, SMS, website banners, mobile app push alerts, and all social media platforms.

The Bank is engaged continuously in enhancing the Risk Management Standards on par with the best practices in the banking sector. The Risk Management Process in our Bank is subjected to review by an external consulting agency to evaluate the level of effectiveness and to bring fresh perspectives to the Risk Management approach adopted by our Bank.

Role of Technology in Managing Risk: CLS - LOS (Loan Origination System)

Technology plays a significant role in enhancing the efficiency, accuracy, and effectiveness of risk related processes. The benefits of leveraging technology in risk management includes enhanced / timely risk identification and assessment accuracy, Improved risk reporting and communication, Continuous monitoring, and evaluation of risk exposures.

Credit processing system has been digitised end-to-end with automated bureau report checks, verification of account statements, GST data, income statements duly supported by well-designed score cards and a process flow document. Field visits, verification of veracity of the documents are handled effectively and supported by a Fraud Control Unit (FCU). Continuous improvements / enhancements are put in place to get complete benefit of the technology. This helps in minimising the manual intervention for its authenticity or genuineness. Further Internal Rating for proposals processed through LOS is obtained using a predefined Business Rule Engine (BRE) concept and is made as a pre-sanction exercise. In addition to the LOS rating, rating is undertaken in CRISIL ICON models and portfolio monitoring by appropriate applications.

Mitigation Steps

The Bank has a centralised credit risk management division, independent of our business functions, to manage credit risk supported by well-defined policies, caps on exposures to various industries, single & group borrowers, sensitive sectors, etc. Appropriate credit underwriting standards, risk mitigation processes, post-disbursement monitoring, strong collection and recovery mechanism via call centres and timely remedial actions ensure that credit risk is contained within acceptable levels. The Retail Credit Risk Team is responsible for retail credit portfolio and parameterised lending, basis product-specific gating parameters and score cards. The parameters and gating conditions are being reviewed periodically. The Analytics team provides comprehensive reports with analysis and inferences to the top management, for taking appropriate policy and business decisions.

Divisional credit risk officers are placed in each divisional office to get a ground zero perspective of credit proposals. Internal credit risk rating of proposals is mandatory for sanction of credit facilities with hurdle rating grades for new and takeover exposures. The Bank has deployed CRISIL ICON models and other models for rating borrowers.

The Bank has a system of monitoring the exposure periodically to ensure that those are within the Policy ceilings approved by the Board. Portfolio studies and industry/sector analysis are carried out to capture up-to-date information. Periodic product and portfolio reviews facilitate course corrections and product / process flow changes.

Digitisation of credit underwriting: LOS (Loan Origination System) has been designed and structured.

To bring in better controls from a system perspective on TATs. Building better underwriting capability based on analytical feed and creating a digital workflow for risk mitigation.

Better due diligence through system designs, sanity and automated bureau checks to minimise onboarding risks.

Stipulation of gating conditions tested based on historical data of the Bank, eliminating subjectivity in the credit approval process.

Well-designed score cards, as a part of decision-making tools apart from gating conditions.

Periodical review of performance of digital portfolio, both retail and commercial for initiating course corrective measures.

Other measures

Credit risk related policies are formulated and reviewed periodically as per the Banks requirements within the ambit of regulations. Comprehensive delegation of powers for various authorities with inbuilt matrix both for risk and non-risk deviations; spread policy takes care of the pricing mapped to scores / rating grades based on components such as Credit risk premium, business strategy premium, tenor premium.

The committee-level approach to credit approval process promotes qualitative discussions and collective wisdom allowing 360-degree analysis of the credit proposals.

Clusters headed by Senior Executives are formed in select centres with business potential, for guiding the BBUs in the matters of credit dispensation, administration and monitoring. PQI (Portfolio Quality Index) concept for monitoring the performance of the business units and relationship officers in an effective manner has been implemented. Bank is using RAROC (Risk Adjusted Return on Capital), as one of the performance measures towards business and profit optimisation. Banks Model Risk Management Framework enables Bank to assess, measure, monitor and mitigate Model Risk.

Bank has a policy on Country risk management. Bank is monitoring developments in countries where it has exposure and taking required mitigants/changes in the strategies / business activities pro-actively.

Bank has formulated ESG Policy for managing Climate Risk and caring for the Environment, Low-Carbon Transition, and Sustainable Operations.

Mitigation Steps

Market Risk is managed through well-defined Board-approved Policies that cap risk in different trading desks and various securities through trading risk limits / triggers for effective and judicious management of investment funds.

Bank has established an independent Mid control unit reporting to Chief Risk Officer, for Treasury & PMD activities.

Mid-Office monitors treasury operations from market and operational risk perspective and reports directly to RMD

Central office.

Policies are in place for conduct of business exposed to market risk and liquidity risk with appropriate risk limits, stop loss limits, etc., for effective management of all market related risks. The policies and practices also take care of monitoring and controlling liquidity risk arising out of its banking book, trading book and off-balance sheet exposures. as a risk To measure and control market risk, interest rate risk, equity price risk and forex risk, Bank has set various risk appetite limits. Bank is using various tools like stress testing, modified duration, PVBP, VaR, position limits, stop loss limits, NOOP limit, AGL etc. to monitor market risk. Currently, capital charge for market risk is computed under the Standardised Duration Approach.

Mitigation Steps

The Banks Asset Liability Management policy provides a framework for management of liquidity risk and interest rate risk. Bank has established risk appetite limits and tolerance limits for both liquidity risk and interest rate risk. Further, Bank also has the necessary framework in place to manage and monitor intraday liquidity risk. ALM of the Bank aims to strengthen the Balance sheet by pro-actively reviewing the market dynamics, capturing the signals emanating therefrom and ensuring value creation while conforming to the regulatory requirements.

Bank conducts studies to assess the behavioural pattern of assets and liabilities with embedded options available to customers. These results are being used in mapping and managing maturity gaps. Our Banks Asset Liability Committee (ALCO) is reviewing pricing of assets and liabilities on a monthly and even at early frequencies depending on the requirements, monitoring adherence to liquidity risk and interest rate risk limits. While the maturity gap and stock ratio limits help to identify liquidity risk, assessment of impact on the net interest income and economic value of equity helps to assess interest rate risk. This is complemented by a stress testing framework covering both liquidity and interest rate risk. Liquidity Coverage Ratio (LCR), a global standard to assess organisations ability to meet its payment obligations, is used to measure a Banks liquidity position. LCR level ensures that the Bank has an adequate stock of unencumbered High-Quality Liquid Assets (HQLA) that can be converted into cash easily and immediately to meet its liquidity needs under a 30-day calendar liquidity stress scenario. NSFR promotes resilience over a longer-term time horizon by requiring banks to fund their activities with more stable sources of funding on an ongoing basis.

Contingency Funding Plan (CFP) ensures that Bank has adequate liquid financial resources to meet liabilities as they fall due. The CFP is reviewed quarterly by the ALCO & Board as a forward-looking measure.

Country risk and Counterparty (Bank) exposure limits are reviewed periodically.

Mitigation Steps

Bank has developed and implemented an operational risk management framework (ORMF) that is fully integrated into the Banks overall risk management system. The Operational Risk Management Framework for the Bank depends on three pillars namely (a) Prepare and Protect (b) Build Resilience (c) Learn and Adapt. ORMF covers the entire gamut of activities right from risk identification, measurement and assessment, monitoring and control, mitigation, reporting to senior management and the Board of Directors on the Banks risk exposures, Business Continuity Management, and learning through feedback for improvement.

Bank is following framework which involves the Business units as First line of defence, the Organisational Operational Risk Function (OORF) as second line of defence and Internal Audit department as third line of defence.

The roles and responsibilities of these functions are clearly definedto implement effective ORMF.

Bank has put in place processes, systems and procedures to actively manage & mitigate operational risks and to optimise resources not only to protect the interests of the Bank but also to ensure return commensurate with the risk profile adopted. Bank has a well-established internal control system, Books of instructions, internal circulars on policy matters and procedures, guidelines which include segregation of duties & responsibilities, systems, standardised operating procedures, clear lines of authority and reporting, among others.

Bank has adopted a structured internal audit mechanism carried out at pre-defined intervals based on well-designed parameters & existing ratings; apart from regular inspection, Bank also has Concurrent Audit, Information Security Audit, Credit Audit, Revenue Audit, and Statutory audit. All the audits and inspections also help in understanding the working of the controls, breaches, and the need for improving the controls and its effectiveness.

Bank is collecting operational risk loss data directly from the business units for effective monitoring of loss events. The operational risk loss data is consolidated, analysed and reported to the Operational Risk Management Committee on a quarterly basis. Risk Management Department of the Bank reviews the operational risk events along with identified Business / Operational verticals and identify new Operational Risks, understands the underlying causes and control weaknesses, and formulate appropriate responses to prevent recurrence of similar events. Bank is using several metrics such as Operational Risk event data, RCSA and KRIs.

Risk and Control Self-Assessment exercise and Key Risk Indicators support in putting in place additional measures to improve the existing systems and controls. All new products and processes, as well as changes in existing products and processes are subjected to risk evaluation by the Banks Product Development Committee and Process Development Committee. Bank has a Business Continuity and Disaster Recovery (BCP & DR) policy to manage disruptions to our operations.

Outsourcing arrangements are examined and approved by the Banks Outsourcing Committee after duly assessing the outsourcing risk. Risk department also independently assessing outsourcing risk. Product, process, and outsourcing committees have representation from the risk department for their views besides suggesting mitigations for the identified risks in those products and process.

To ensure adequate and timely identification, measurement, monitoring, control and mitigation of reputation risk posed, a Board-approved reputation risk management policy is put in place.

Mitigation Steps

Bank has put in place a fraud risk management policy and standard operating procedure clearly defining the roles and responsibilities of all the related stakeholders in the matters relating to detection / identification, classification and reporting of frauds to RBI, other regulatory bodies, Board of the Bank and Sub committees of the Board, process of investigation, apart from recovery including insurance claims, provisioning, disciplinary action against the fraudsters, closure of fraud, etc. Fraud Risk Management Policy has put in place a framework for prevention, early detection and timely reporting of incidents of fraud to Law enforcement agencies (LEA), RBI and also to clearly delineate Roles and Responsibilities of Board/Board committees and Senior management of the Bank. Also, this policy has covered principles of natural justice with defined timelines. A special Board-level Committee - Special Committee of the Board for Fraud Monitoring and Follow-up of Fraud cases (SCBMF) is overseeing the effectiveness of fraud risk management in the Bank. This committee monitors and reviews cases of frauds, including: Root cause analysis, and suggest of mitigation measures for strengthening the internal controls, risk management framework and minimising the incidence of frauds.

Reasons are analysed by studying the transactions, understanding the weaknesses in the system and suggest additional controls to prevent recurrence. A number of Early Warning Signals (EWS) are studied, and the results are shared with concerned verticals.

Besides internal data, public domain data is also analysed as a preventive and monitoring mechanism.

Online transactions are monitored by Enterprise Fraud Risk Management application (EFRM) to identify any attempt of frauds and to initiate necessary preventive measures like calling the customer / sending alerts / blocking the transaction for customer approval etc. Some of the large loan accounts that exhibit several EWS are studied in detail for a period of six months, and appropriate decisions are taken based on the results of the study. Special attention has been paid to the Whistle Blower Mechanism in the Bank and the staffs are encouraged to use the same to flag any issues / irregularities, including Operational Risk Events or Frauds when comes to their knowledge. Gap analysis, root cause analysis is done to identify the critical factors contributing to the frauds and implement additional safeguards wherever required, to avoid recurrences of similar type of frauds. Many controls, changes in processes, systems and products have been recommended and implemented to ensure systems and procedures are meeting the requirements.

Mitigation Steps

The objective of integrated risk management is to measure and manage risk and capital across a range of diverse business activities on a holistic basis in a centralised environment with the responsibility of identifying, measuring, monitoring, and mitigating the risks in various functions.

Integration of risk is also due to the interwoven nature of risks. There is a component of credit risk in Market risk and Operational risk is existing on both credit and market risks. The impact of Pillar II risks on the Pillar I risks cannot also be discounted. Operational risk is an all-pervading factor in the banking business and is present in every activity undertaken by the Bank. Hence, management of risk requires a well conceptualised integrated risk management.

Commodity Price Risks and Foreign Exchange Risks and Hedging activities

The Bank has Market Risk Management Policy, Integrated Treasury Policy and Precious Metals Division Policy approved by the Board specifying risk control framework for undertaking any Commodity price risk and Foreign exchange risk. The Board of the Bank has defined overall Net Overnight Open Position (NOOP) Limit, Stop Loss Limits for trading activities, Aggregate Gap limit (AGL), Value at Risk (VaR) limit to manage the foreign exchange risk within its risk control framework. The Banks policy stipulated margins for lending against commodities and has put in place a system of monitoring margins available / required with respect to on-going commodity prices.

Bank is authorised by Reserve Bank of India to import gold and silver. Bank imports gold and silver on consignment basis and sales are being covered on back-to-back basis.

Bank uses Forwards & Forex Swaps for hedging its currency and interest rate risk for its foreign currency balance sheet items, customer cover, and for proprietary trading, within overall risk limits and control framework. The management of these products and businesses is governed by Board-approved Policies of the Bank.

Climate Risk

Climate risks are broadly divided into two categories:

1. Transition Risks: Risks arising from various factors such as changes in policy and regulation, advancements in technology, and shifts in consumer preferences.

2. Physical Risks: This includes both chronic and acute impacts of climate change. Chronic risks involve long-term changes in temperature, precipitation patterns, agricultural productivity, and sea levels, while acute risks refer to immediate and severe events such as heatwaves, floods,

As a responsible Bank, we recognise the significant impact of climate-related risks, which span credit, operational, market, and reputational domains. Bank also acknowledge the importance of environmental and social risks, particularly those linked to climate change. We are aligning our policies to meet the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). We are conducting climate-related scenario analysis and stress testing, by incorporating relevant climate factors into our stress testing exercises. We are actively developing our capabilities for climate-related stress testing and scenario analysis adhering to regulatory guidance.

Risk Exposure and Assessment

The Bank is exposed to various types of risk such as Credit, Market, Operational, Liquidity, Interest Rate, Reputational, Legal and Strategic risk. The Bank has a separate and independent Risk Management Department in place which oversees the management of all types of risks in an integrated fashion.

The objective of risk management is to have an optimum balance between risk and return. It entails the identification, measurement, and management of risks across the various businesses of the Bank. Risk is managed through a framework defined in policies approved by the Board and supported by an independent risk management function which monitors and takes corrective action so that the Bank operates within its risk appetite. The Risk Management function attempts to anticipate vulnerabilities through quantitative or qualitative examination of the embedded risks in various activities. The Bank continues to focus on refining and improving its risk management systems. In addition to ensuring compliance with regulatory requirements, the Bank has developed robust internal systems for assessing capital requirements and keeping in view the business objectives.

The Board of Directors approves the strategies and policies for Risk Management, based on recommendations of the RM & ALM Committee of the Board set up to focus upon risk management issues. The RM & ALM Committee of the Board reviews various aspects of risk arising from the businesses undertaken by the Bank. Operating level risk committees comprising senior management viz. Asset Liability Management Committee (ALCO), the Operational Risk Management Committee (ORMC), Market Risk Management Committee (MRMC) and the Credit Risk Management Committee (CRMC) oversee specific risk areas. These committees in turn provide input for review by the RM & ALM Committee of the Board.

Board Committees

Risk Management and Asset Liability Management and wildfires. Committee (RM & ALM)

This Committee shall put in place explicit procedures for managing enterprise-wide risk that the Bank is exposed to based on the regulatory guidelines. The Committee review and approve the development and implementation of risk assessment methodologies and tools, including assessments, reporting etc., foresee future changes and threats and prioritise action steps, monitor, and oversee the implementation of the Risk Management Framework in the Bank.

The Risk Management & Asset Liability Management Committee shall recommend the policies to Board, strategy, and methods for risk management, by evaluating the overall risks faced by the Bank in determining the acceptable level of risks. The committee inter-alia looks into the following aspects:

Effectiveness of overall risk management framework in meeting sound corporate governance principles and identifying, managing, and monitoring the key risks of the Bank.

Oversee and monitor the Banks compliance with regulatory requirements.

Setting and defining the

Recommend suitable controls / mitigations for managing different risks.

Oversee functions of Credit Risk Management Committee (CRMC), Market Risk Management Committee (MRMC), Asset Liability Management Committee (ALCO) and Operational Risk Management Committee (ORMC).

Reviewing and recommending the Internal Capital Adequacy Assessment Process (ICAAP) to Board.

Discussion with CRO for ensuring independence of risk functions.

The Committee ensures effective implementation of the risk management strategies and decides the policies and strategies for risk management in the Bank. In compliance with RBI circular appetite of the Bank. guidelines, RM & ALM Committee is headed by non-executive member from the Board of the Bank.

Executive-Level Committees:

Organisational setup and responsibilities of Executive-level committees in implementing Board-approved strategies and policies are as below:

INFORMATION SECURITY GROUP

KVB is committed to safeguarding the customer data stored within the digital platforms of your Bank. We continuously utilise various state-of-the-art tools and data protection technologies for the protection of customer data.

We use strong encryption algorithms and recent TLS versions. We have implemented techniques like data masking and tokenisation for the protection of sensitive customer information. Access to sensitive information is restricted based on the principle of least privilege. Tools like privileged access management, along with Multifactor Authentication, enhance the level of data protection. We have also implemented a Data Leak Prevention (DLP) tool that prevents leakage of sensitive information to the external world. A data classification solution helps the end user to classify the documents into relevant categories, helping to prevent further data loss.

Regular security assessments and penetration testing are carried out to address and fix all the known vulnerabilities. All systems are patched regularly to ensure protection. Regular backup and a well-tested Disaster Recovery Plan strengthen the posture of your Bank. Periodic third-party risk assessments and audits ensure the safety of customer information stored at third-party vendor locations. We are compliant with latest standards like ISO 27001 and PCI DSS, for which periodic compliance audits are being carried out to ensure compliance.

As a part of our continuous improvement strategy, we have recently implemented a Data Rights Management solution that centrally defines, associates, enforces, modifies and audits granular file usage permissions, thereby blocking access to files/data/USB to unauthorised users. We have also initiated assessment of compliance requirements for DPDP guidelines and are getting ready to comply with regulations once the law is released.

HUMAN RESOURCES

Our values-based approach to employee development creates a workforce that is deeply engaged, committed to customer excellence, and aligned with our strategic vision for sustainable growth. For further details, please refer to page 44.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Audit function and governance

The Inspection and Audit function is pivotal in assessing and ensuring the adequacy of internal controls, risk management practices and overall governance processes within the Bank. The team is responsible for independently evaluating the strength of operational controls, compliance with regulations, and the effectiveness of the Banks risk management strategies. By doing so, the audit function helps identify potential weaknesses or inefficiencies in business processes and ensures that proper safeguards are in place to mitigate operational and financial risks.

Your Banks Internal Audit function is charged with ensuring that the Bank adheres to regulatory frameworks, internal policies and procedures. Internal Audit offers proactive recommendations for enhancing operational processes, strengthening internal controls and improving governance practices across the organisation.

The audits conducted by the Bank are spread across various units, such as branches, business units and back-office operations, with a focus on key operational and risk functions. The audits also cover areas like information security, IT governance and infrastructure to ensure that all aspects of the Banks operations are thoroughly assessed for compliance and efficiency.

The Audit Committee of the Board plays a critical role in overseeing the effectiveness of the internal audit function. This committee reviews and evaluates the audit, offers functional guidance and assesses the performance of the Inspection and Audit functions. The committee also provides strategic direction and recommendations to help improve audit processes, ensuring that the Bank operates with the highest standards of governance and risk management.

Audit policies and staffing

The Internal Audit Policy is a crucial document that sets the framework for the Banks audit activities. It is periodically reviewed by the Audit Committee and approved by the Board to ensure that it remains aligned with regulatory guidelines and industry best practices. The policy outlines the procedures, standards and methodologies to be followed during audits to ensure consistency, reliability and thoroughness in all audit functions.

The audit team is staffed with skilled and experienced professionals, including specialists in areas such as Information Technology (IT), Cybersecurity, and other business operations/ functions. The diversity of expertise within the audit team ensures that the Banks audit activities cover all aspects of its operations, from traditional banking functions to more complex areas like IT systems and digital security.

Types of Audits Conducted

The Bank carries out various types of audits, including:

Risk-Based Internal Audits (RBIA): This type of audit focuses on identifying and assessing the risks inherent in key areas such as credit and operational risks which centres around existing controls (regulatory and critical) built in. RBIA also evaluates the effectiveness of controls and measures implemented to manage these risks and helps uncover any potential control gaps or weaknesses before they become significant.

Surprise audits: These unannounced audits help detect irregularities or lurking issues that might not be detectable during planned audits, thereby ensuring continuous vigilance. Revenue audits: These audits are focussed on ensuring that the revenue streams of the Bank are properly managed, accurately collected and reported and ensuring compliance with the financial reporting standards.

Concurrent audits: Concurrent Audits are strategically carried out in high-priority areas such as key Branches, Corporate Business Units, Business Banking Units, and various other back offices. These audits help ensure that the real-time operations are aligned with internal policies and regulatory guidelines. The concurrent audits are designed to minimise the risk of non-compliance or financial irregularities by constantly monitoring critical processes. The Bank utilises the services of external auditors to conduct concurrent audits. These external auditors are appointed based on the Board-approved Auditor Appointment Policy. The involvement of experienced third-party auditors adds an extra layer of objectivity and expertise, ensuring that audits are conducted with the highest level of professionalism and thoroughness.

Credit audit: It focusses on evaluating large credit exposures and is conducted as part of the Banks loan review process. Credit audits help ensure that credit risk is effectively managed and that loan sanctioning and post-sanction activities are fully completed and compliant with regulatory guidelines. Jewel re-appraisals: Your Bank regularly conducts reappraisals of jewels pledged for Jewel Loans. This re-appraisal process is intended to reassure that the purity & type of the pledged ornament assets are as per the standards prescribed by the Bank. Additionally, the Bank conducts mystery shopping to verify standards followed for jewel assessment and evaluation. Process audits: Process Audits focus on evaluating the design and effectiveness of specific business processes within the Bank. These audits are intended to assess how well key processes are functioning, whether they are efficient, and if they adequately mitigate operational risks. During process audits, the Bank examines internal controls, operational risks, regulatory compliance, and the effectiveness of business procedures. This helps identify inefficiencies, control gaps, and areas where improvements can be made to enhance overall operational effectiveness.

Information Systems (IS) audits: The Bank has a comprehensive Board-approved IS Audit Policy, which is reviewed annually to ensure that the Banks information systems remain secure and compliant with industry standards. The IS Audits cover all critical aspects of the Banks information technology infrastructure including; data centres, applications, technical centres, and back-office functions. The audits assess the security, performance, and integrity of the Banks IT systems to ensure that they are resilient to cyber threats and are functioning optimally. External expertise, particularly from CERT-In empanelled firms, is engaged to conduct certain parts of the IS audit, ensuring that specialised skills and knowledge are applied to the most complex and critical areas of IT governance and cybersecurity. These audits are vital to ensure that the Banks IT infrastructure is resilient to potential disruptions, both natural and technical. By evaluating these areas, the Bank can ensure that contingency plans are in place and that business continuity is maintained during times of crisis.

Vendor audits: To understand and mitigate third-party risks involved in the activities outsourced by the Bank, the Bank is conducting the vendor audit (IT & Non-IT) on an annual basis. The audit also encompasses compliance with information security standards of the vendor/service provider.

Other audits: The Bank also conducts management audits for its Central Office verticals, Divisional Offices, and regularly inspects currency chests to ensure the integrity and security of cash handling operations, in compliance with RBI guidelines.

Focus on Digitalisation and New Business Areas

With the Banks expanding involvement in digital business models, such as Co-lending, Direct Assignments and Micro-Fin loans, the internal audit function has increased its oversight in these areas. Audits in these new areas ensure that the Banks digital operations are aligned with industry standards, regulatory requirements, and internal policies.

The Off-site Audit Mechanism allows the Bank to conduct continuous monitoring of key operations, especially within the loan lifecycle. This mechanism ensures that critical processes are being executed efficiently and that any discrepancies or gaps are identified promptly. Through the digital tools, the Bank can track post-sanction activities and prepare units for future on-site audits, significantly reducing turnaround times and operational risks. The integration of digitalisation not only enhances operational efficiency but also improves the Banks ability to respond quickly to emerging issues.

Risk-Based Approach and Technology Integration

The Banks audit approach is primarily risk-based, as outlined in the Reserve Bank of India (RBI) guidelines for RBIA. This methodology ensures that the focus of the audit is on areas with higher risks or potential vulnerabilities, ensuring that the Banks resources are efficiently allocated to mitigate the most critical risks first.

The audit function leverages technological tools, IT systems and automated monitoring mechanisms to enhance the efficiency These tools assist in identifying branches or business units that require to be inspected, tracking the progress of audits, and ensuring compliance with internal policies. Additionally, these technologies enhance the precision and scope of audits, ensuring that risk identification and mitigation strategies are data-driven and comprehensive.

The Banks audit, risk management, and governance functions are comprehensive and systematic, emphasising proactive risk mitigation, continuous monitoring, and adherence to regulatory and internal standards. By integrating advanced technology, leveraging external expertise, and adopting a risk-based audit methodology, the Bank is able to maintain high levels of operational effectiveness, compliance, and security. This structured and forward-looking approach to auditing ensures that the Bank can navigate risks effectively while continuously improving its processes and controls.

COMPLIANCE

At KVB, compliance is the core of governance, seamlessly integrated with internal controls and risk management to uphold regulatory standards, internal policies, and ethical conduct. The Compliance Department, led by the Chief Compliance Officer (CCO), a senior management executive, ensures independence and direct access to the Board and Audit Committee. Reporting to the Managing Director & CEO, the CCO meets with the Audit Committee on quarterly basis in one-on-one sessions and has the authority to escalate issues directly to the Board. The Board-approved Compliance Policy establishes a robust framework, fostering transparency, accountability, and a non-negotiable culture of compliance across the organisation. The department collaborates with business units, compliance coordinators, and divisional offices, providing regular updates to the Board and management through monthly, quarterly, and annual reviews. By staying abreast of regulatory developments, participating in industry forums, and delivering continuous employee training, KVB reinforces its commitment to operational integrity and stakeholder trust.

Outlook

As the regulatory landscape evolves, KVB is committed to adopting a proactive, technology-driven, and risk-based compliance framework to ensure operational resilience and regulatory excellence. The Bank will focus on:

Technology Adoption: Completing the Compliance Risk Tool implementation and integrating with RBIs regulatory platforms to enhance monitoring and reporting efficiency.

Regulatory Engagement: Strengthening collaboration with regulators to anticipate and adapt to emerging requirements. Risk-Based Approach: Prioritising high-risk areas such as AML, cybersecurity, and third-party risks within an integrated Compliance Risk Management (CRM) framework.

Training and Awareness: Expanding staff training programmes to reinforce compliance responsibilities and foster a culture of ethical decision-making.

Sustainable Practices: Implementing sustainable finance policies to support responsible banking.

Regulatory Excellence: Establishing a dedicated regulatory excellence team to navigate complex regulations and ensure stakeholder confidence.

By embedding compliance into its strategic priorities, leveraging automation, and fostering a culture of integrity, KVB aims to maintain trust, mitigate risks, and drive sustainable growth in an increasingly dynamic banking environment.

DISCLOSURE OF ACCOUNTING TREATMENT

The financial statements are prepared following the going concern concept, on historical cost basis and conform to the Generally Accepted Accounting Principles (GAAP) in India which encompasses applicable statutory provisions, regulatory prescriptions and extant disclosure norms prescribed by the Reserve Bank of India (RBI) from time to time, notified Accounting Standards (AS) issued under Section 133 of the Companies Act, 2013, read together with Companies (Accounting Standards) Rules, 2021 and current practices prevailing in the banking industry in India. The accounting policies adopted in the preparation of financial statements are consistent with those followed in the previous year except for accounting of employee share-based payment which is explained under the policy for Employee Benefits.

CAUTIONARY STATEMENT

Certain statements in the ‘Management Discussion and Analysis describing our objectives, estimates and expectations may be ‘forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could differ substantially from those expressed or implied. These statements are subject to risks and uncertainties, including the effect of economic and political conditions in India and outside India, volatility in interest rates and in the securities market, new regulations and government policies that may impact our businesses as well as our ability to implement the strategy. We do not undertake to update these statements. Figures for the previous year have been regrouped wherever necessary to conform to the current years presentation. Important factors that could make a difference include economic conditions in the domestic and overseas markets, changes in laws/regulations and other incidental facts. This document also does not constitute an offer or recommendation to buy or sell any financial products offered by your Bank.