Cleanup pays off, legacy private sector banks in south strike gold

CHENNAI: Southern India’s old private sector banks have finally struck gold. After years of grappling with bad loans, boardroom battles and regulatory scrutiny, lenders such as Tamilnad Mercantile Bank (TMB), City Union Bank (CUB), Karur Vysya Bank (KVB), Federal Bank, Karnataka Bank and South Indian Bank (SIB) have delivered an impressive first-quarter performance, reflecting the success of a painstaking clean-up over the past few years.

The surge has also been aided by a booming gold loan business, healthier retail portfolios and stronger recoveries.

Federal Bank led the earnings rally with a 37% jump in net profit to Rs 1,177 crore, while Karur Vysya Bank reported a 45% rise to Rs 756 crore. Karnataka Bank’s profit climbed from Rs 292 crore to Rs 419 crore, Tamilnad Mercantile Bank posted Rs 412 crore (14-year high), City Union Bank recorded a 25% increase to Rs 383 crore, and South Indian Bank’s consolidated net profit rose 17.2% to Rs 378 crore.

Banking experts, tracking the old private sector banks, attribute the surge in the net profit of such banks in the first quarter to cleaned up balance sheets, distinct improvement in loan books, asset quality, improved collections apart from lower provisioning for NPAs. The banks have also benefited from higher return from treasury operations with better yields on investment in bonds. They are also operating in a healthy working environment with stability in top management and the officials able to focus on boosting the advances.

The experts say in the last couple of years, the old private sector banks in the south have made hefty provisioning against sticky loans. They would have lent these advances under the influence of politicians, rulers and promoters of these banks. But with strict monitoring by their boards, RBI and other regulators on lending and fast recovery and armed with banking laws, the banks have managed to recover these dues or take possession of the pledged assets. This has helped them to cut down provisioning and improve the bottomline.

Lower NPAs, improved collections, reduced provisioning and treasury gains have strengthened profitability, while most of these banks have consciously shifted away from large corporate lending to retail, MSMEs, agriculture and gold loans.

Their expansion beyond southern markets and investments in technology have further improved operating efficiency.

Economic analyst V Balasubramanian said the turnaround marks a sharp departure from a period when promoter disputes, governance issues and frequent leadership changes had overshadowed business growth.

“Many of these banks were distracted by boardroom conflicts and regulatory scrutiny. Today, RBI's strict monitoring, professional management and tighter governance have restored stability, allowing them to focus on growing the business,” he said.

Two independent directors and veteran bankers, speaking on condition of anonymity to DTNext, said collections have improved significantly, resulting in lower delinquencies. RBI’s tighter norms on multiple borrowings have also strengthened credit discipline, while gold loans have emerged as a major earnings driver.

N Kamakodi, former MD-CEO, City Union Bank, described the current phase as the “beginning of a good cycle”, saying the NPA clean-up, stronger collection discipline, rising gold loan demand and improving industrial activity have all contributed to the sector’s revival.

Industry experts believe the transformation is structural rather than cyclical. Once defined by community ownership, these lenders are now increasingly customer-centric, professionally managed and technology-driven.

After years of consolidation and reform, southern India’s old private sector banks appear well placed to sustain their momentum despite an uncertain global economic environment.

Rs 300-crore plus net profit club

• Federal Bank records 37% jump to Rs 1,177 crore,

• Karur Vysya Bank sees 45% rise to Rs 756 crore,

• Karnataka Bank’s profit up 43% at Rs 419 crore,

• Tamilnad Mercantile Bank net up 35% to Rs 412 crore,

• City Union Bank 25% increase to Rs 383 crore and

• South Indian Bank’s net profit rose 17.2% to Rs 378 crore

GOLD LOAN BIZ

South Indian Bank

Gold loan portfolio grew by Rs 7,484 cr from Rs 17,446 cr to Rs 24,930 cr (42% up YoY)

Karur Vysya Bank 30%

Average loan-to-value in agri gold loans is 67%; non-agri gold loans below 60%

Federal Bank 33% gold loans growth

Tamilnad Mercantile Bank 48% gold portfolio share Rs 27,404 crore up from Rs 24,790 cr in Q4 FY26 and Rs 19,229 cr in Q1 FY26

City Union Bank 31% of total advances as of June 30, 2026