Capitaline

Analyst Meet / AGM 26-Jul-19

Conference Call

Karur Vysya Bank

Maintains guidance net rise in NPAs of Rs 1100 crore for five quarter ending Q4FY2020

Karur Vysya Bank conducted concall on 25 July 2019 to discuss financial performance for the quarter ended June 2019 and the prospects of the bank. P R Seshadri, MD&CEO of the bank addressed the call:
Highlights:

The bank is strongly focusing on retail business, which grew 32%, while it expanded 27% excluding OBPC. Technological changes have mainly aided the growth.
The bank has realigned its commercial loan business into 3 lines: 1. small business group (SBG) for loans up to Rs 2 crore managed through digital process, 2. business banking group (BBG) for loans of Rs 2-15 crore managed by relationship mangers and 3. emerging corporate group for loan in ticket size of above Rs 15 crore.
The bank of the bank will be on driving small ticket loans in the commercial segment. The bank has witnessed 109% growth in application in commercial loan segment, while sanctions declined 2%.
The retail loan applications increased 37%, while sanctions galloped 30% on qoq basis in Q1FY2020.
The non-branch distribution team ‘neo' is in place, which would contribute to the business from Q2FY2020.
The asset book of the bank has declined in Q1FY2020 on sequential basis due changing balance sheet structure, which is moving closer to the intended mix.
The commercial book of the bank declined by 1% end June 2019 over June 2018, mainly driven by decline in the utilization level.
The bank has grown its retail term deposits book to stay liquid, which has led to increase in investment book by Rs 4000 crore in Q1FY2020.
The bank has consistently raised PCR to 59% end June 2019.
The net interest margins of the bank has declined by 39 bps on qoq basis to 3.49%, of which 8 bps was on account of one-off income in Q4FY2019, 6 bps due to rise in cost of funds with rise in timer deposits, 6 bps due to increase in low yielding investment book by Rs 4000 crore, 4 bps due to interest income reversals on agriculture loans and 5 bps on account carrying impact of IBPC. The balance decline of 10 bps is manageable. The bank expects NIM to improve to 3.88% by Q3FY2020.
The weighted average yield on new retail loans stood at 11.77% and 12.03% for commercial loan book in Q1FY2020.
Fee income of the bank has declined mainly due to reduction in the non-fund based book.
As per the bank, its exposure to commercial real estate to large developers is limited.
The bank's exposure to real estate vehicle loans fell 1% and education loan declined by 10%, as the bank is deemphasizing on these loans with vehicle loans being competitive and education loan need expertise to handle.
The bank has maintained guidance of NPA for the five quarters ending March 2020 at gross slippages of Rs 1850 crore, recovery of Rs 750 crore leading to net increase in NPAs of 1100 crore. Also, the net increase in NPAs is expected at Rs 1300 crore, including Rs 200 crore considering some uncertain events.
The bank has exposure of 4% to NBFC mostly to institutions from southern India in gold finance business, which is not an area of concern.
The bank has exposure to tea garden company in eastern India which has been classified as NPA and bank has made provisions. However, the bank does not have exposure to the company manufacturing water tanks and large housing finance company, which is in news for showing stress.

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