Capitaline

Analyst Meet / AGM 16-Oct-19

Conference Call

Karnataka Bank

Targets loan growth of 14% and sustain fee income growth above 20% for FY20

Karnataka Bank conducted a conference call on 16 October 2019 to discuss the financial results for the quarter September 2019 and prospects of the Bank. Mahabaleshwara MS, MD & CEO of the bank addressed the call:
Highlights:

The bank has posted healthy 16% growth in the operating profit driven by 12% growth in interest income and 39% surge in fee income in the quarter ended September 2019. However, the net profit has declined due to higher provisions.
The bank has improved provisions coverage ratio 59.2% end September 2019 from 58.1% end June 2019, while aims to improve it further to above 60% in FY2020.
The bank has witnessed moderation in the loan growth to 7% end September 2019 mainly on account of exit from IBPCs of Rs 4500 crore in the end of Q2 FY2020. However, the average loan growth was higher at 12% end September 2019.
The bank expects to improve loan growth above 14% by end March 2020. Bank sees merger of nationalized as major opportunity on portfolio takeovers front.
The bank has been strongly focusing on retail (below Rs 5 crore) and mid-corporate (below Rs 5-100 crore) loan segment for last 2-3 quarter. The share of retail loan book has increased to 46.4% and mid-corporate to 28.4%, while that of corporate (above Rs 100 crore) has declined to 25.2% end September 2019.
The retail loan book grew 12% and mid-corporate 10%, while the corporate loan book has declined 5% end September 2019.
The bank aims to raise the share of retails loans to 50% and mid-corporate to 30% by FY2021.
The fresh slippages of loans were elevated at Rs 530.95 crore in Q1FY2020. Among the major accounts contributing to the slippages was one export sector account with the exposure of Rs 101 crore, which is expected to be upgraded in October 2019 itself. Further, the account of Sintex Industries Rs 95 crore and one textiles account of Rs 55 crore also contributed to the fresh slippages. Sector wise, large corporate segment contributed slippages of Rs 205.6 crore, MSME Rs 130 crore and agriculture Rs 129 crore in Q2FY2020.
The bank has recorded recoveries and upgradations of Rs 145.68 crore, while write-offs stood at Rs 228.53 crore in Q2FY2020.
The capital adequacy ratio of the bank was healthy at 12.64%, while including profits for H1FY2020 it was higher at 13.2% end September 2019.
The bank has improved yield on loans to 9.69% in Q2FY2019 from 9.4% in Q2FY2019, while it has moved up to 9.5% in H1FY2020 from 9.37% in H1FY2019.
The bank has also witnessed increase in cost of deposits to 6.07% in H1FY20 from 5.94% in H1FY19 due to one-off reason as bank has received large inflows of Rs 3500 crore in special 451 days deposits scheme offering 7.5% interest rate.
The deposit rates have been reduced, while CASA ratio has improved to 27.4% which is expected to support improvement in margins ahead.
The transformation journey of the bank has been on full steam. The bank has completed the digital sanctioning of home and personal loans. The bank has improved the share of digital transaction to 82% end September 2019 from 80% end June 2019.
The bank's exposure to infrastructure sector has declined 24% to Rs 2828 crore, constituting 5.22% of loan book. The GNPA in the infra book stood at Rs 131 crore of 4.63% of the infra book end September 2019.
The bank do not see much stress on its loan book going forward, while its keeping close on its NFBC exposure to DHFL at Rs 168 crore and Religare at Rs 68 crore, which is into SMA 2 category and the bank has already signed ICA.
The bank has also signed ICA for Reliance home finance with exposure of Rs 20 crore and NPA accounts of Sintex Industries and Reliance Commercial with cumulative exposure of Rs 232 crore.
The SMA-2 category loan book of the bank stood at Rs 588.37 crore end September 2019.
The bank has posted strong 39% growth in core fee income, while it expects to sustain fee income growth above 20%.
With the other income, services and processing charges contributed Rs 46.9 crore in Q2FY2020 (against Rs 25.77 crore in Q2FY2019), incidental charges Rs 34.6 crore (Rs 38 crore), trading income Rs 39.3 crore (Rs 6.93 crore), inland and forex guarantees Rs 26.26 crore (Rs 20.42 crore), recoveries in written off accounts Rs 18.41 crore (Rs 8.75 crore), insurance commission Rs 15.5 crore (Rs 8.03 crore), forex Rs 5.4 crore (Rs 6.78 crore) etc.
Risk weighted assets of the bank has increased to Rs 50277 crore end September 2019 from Rs 47618 crore end September 2018.

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