Capitaline

Analyst Meet / AGM 14-Jan-19

Conference Call

Karnataka Bank

Expects to reduce GNPA to 4% and NNPA to 3% by March 2019

Karnataka Bank conducted a conference call on 11 January 2019 to discuss the financial results for the quarter December 2018 and prospects of the Bank. Mahabaleshwara MS, MD & CEO of the bank addressed the call:
Highlights:

The bank has posted healthy growth in earnings for the quarter ended December 2018 with surge in other income. The bank has posted 14.1% growth in the fee income while trading income jumped to Rs 107 crore in Q3FY2019.
The overall trading income of the bank has still declined to Rs 120 crore in 9MFY2019 from Rs 185 crore in 9MFY2018. About 50% of trading income in 9MFY2019 has been contributed by sale of stake in Universal Sompo General Insurance.
The bank has reduced its stake in Universal Sompo General Insurance to 8.7% from 14.9% in Q3FY2019, while continues as a bancassurance partner for selling general insurance products. The bank is also in general insurance bancassurance partnership with Bajaj Allianz General Insurance. For life insurance bancassurance, the bank has partnered with Metlife and LIC.
The fresh slippage ratio for the bank increased to 0.86% (Rs 407 crore) in Q3FY2019. The bank has an exposure of Rs 30 crore to IL&FS group in ITNL, Rs 75 crore in infrastructure segment and Rs 50 crore in energy segment, totaling to Rs 155 crore which has fully classified as NPA in Q3FY2019.
Excluding IL&FS exposure, the fresh slippage ratio for the bank was lower at 0.53%. Going forward, the bank expects fresh slippage ratio to be under control and below 0.5% in Q4FY2019.
The bank has made provisions of 15% for its NPA exposure to IL&FS group, while also de-recognized Rs 6 crore as unrealized interest income.
Interest income reversal stood at Rs 30 crore in Q3FY2019, which includes Rs 6 crore IL&FS reversals, Rs 10.7 crore of MSME dispensation, Rs 2.8 crore of MSME restructured account and Rs 10 crore of agriculture segment reversals.
The provision coverage ratio of the bank stood at 57.2% end December 2018 compared with 57.49% end September 2018.
The bank has witnessed jump in employee expenses in Q3FY2019 due to salary hike of 12%, while the bank has also made provision of Rs 29 crore for superannuation benefits and Rs 22 crore for wage revision.
The bank expects to maintain NIM above 3%, while expects to reduce GNPA ratio to around 4% (20 bps +/-) and NNPA ratio below 3% by end March 2019.
The bank aims to improve CASA ratio to 29-30% in next 2-3 years.
The bank has exposure of 15.2% of total advances in the NBFCs segment, while it has stopped taking further exposure in the NBFC sector.
The bank does not have any big NPAs in the power sector, while most of the exposure is towards govt entities. The overall power sector exposure of the bank stands at Rs 2577 crore (4.88%) of which Rs 187 crore is NPA.
The major focus on the bank would be on MSME loans with ticket size of below Rs 5 crore.
The bank expects agriculture sector continue under stress, while the bank has GNPA ratio of 4% for agriculture sector. The bank has expects MSME sector to be loan growth engine, while expects the banking sector to benefit from slow NBFC sector growth.
The bank has sold one account from the steel sector with the exposure of Rs 116 crore to ARCs in all cash deal, of which Rs 37 crore is realized. The securities receipts book of the bank has declined to Rs 435 crore end December 2018 from Rs 438 crore end September 2018 and Rs 447 crore end March 2018.
The SMA 2 category loans of the bank has declined to Rs 333.6 crore end December 2018 from Rs 346.7 crore end September 2018.
The MSME account under RBI dispensation stood at Rs 225 crore end December 2018. The bank expects about 55-60% of these accounts to be upgraded.
RBI has completed the annual inspection of the bank, while its yet to receive NPA divergence report for FY2018.
The bank has raised Rs 400 crore under Tier 2 capital at a coupon rate of 12% per annum. The bank expects increase in capital adequacy ratio to 12.8% including profit for 9MFY2019.

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