Capitaline

Analyst Meet / AGM 12-Jan-18

Conference Call

Karnataka Bank

Expects to continue reduction in fresh slippages of loans

Karnataka Bank conducted a conference call on 12 January 2018 to discuss the financial results for the quarter December 2017 and prospects of the Bank. Mahabaleshwara MS, MD & CEO of the bank addressed the meet:
Highlights:

The bank has crossed the business level of Rs 1 lakh crore end December 2017. The business of the bank increased 10% to Rs 102182 crore end December 2017 over December 2016, driven by strong 24% growth in advances.
The deposits base of the bank was flat at end December 2017 over December 2016. However, the CASA deposit ratio of the bank has been at strong level of 28.2% at end December 2017.
With strong loan growth, the bank has substantially improved its CD ratio to 76.9% end December 2017 from 62.3% and December 2016.
The bank has recorded healthy 20% growth in net interest income, while the other income has jumped 46% in Q3FY2018. The operating profit of the bank has jumped 87%, while net profit improved 28% in the quarter ended December 2017.
The bank has exhibited substantial improvement in net interest margin (NIM) to 3.09% in Q3FY2018 from 2.85% in Q3FY2017. The bank expects to maintain or improve its margins going forward.
The RIDF investment book of the bank has declined to Rs 1223 crore end December 2017 from Rs 1453 crore end December 2016.
The bank has continued to reduce fresh slippages of loans from Rs 498 crore in Q1FY2018 to Rs 374 crore in Q2FY2018 and further lower to Rs 211 crore in Q3FY2018. The recoveries and upgradations stood at Rs 71 crore, while write-offs were Rs 71 crore in Q3FY2018.
The bank has reduced the fresh slippage ratio from 0.75% in Q3FY2017 to 0.49% in Q3FY2018, helping to reduce Gross NPA ratio to 3.97% end December 2017. The bank has achieved the target of reducing Gross NPA ratio below 4% ahead of March 2018.
The bank had set up credit monitoring department two years back, while credit monitoring teams are set up at all 12 regional offices that has helped to contain fresh slippages of loans. The bank is optimistic about further decline in fresh slippages of loans, going forward.
The provision coverage ratio of the bank stood at 49.13% end December 2017.
The bank has exhibited substantial reduction in stressed asset ratio to 8.95% end December 2017 from 13.32% end December 2016. The bank has reduced restructured advance to Rs 970 crore end December 2017 from Rs 1616 crore end December 2016.
The SMA -2 category loan book of the bank has also declined to Rs 1218 crore end December 2017 from Rs 1589 crore end December 2016.
The bank is focusing strongly on loan growth with retail and mid corporate loan segment under strong focus. Within corporate loan segment, the top rate accounts are under strong focus.
The retail loan book constituted 46% of the loan book, mid corporate 9.2% and large corporate 44.2% end December 2017.
Within the retail sector, the agricultural loan book has expanded 17%, housing 15% mortgage 15% and other schematic loans 13% end December 2017 over December 2016.
The bank expects to further accelerate its loan growth to above 25% by end March 2018, while expects to further improve credit-deposit ratio to 80%.
The bank is also focusing on fundraising from other options than deposits, which would support improvement in credit-deposit ratio.
With regard to exposure to the accounts referred to National Company Law Tribunal (MCLT) for speedy resolution under IBC, the bank has exposure to 4 account with the outstanding balance of Rs 319 crore. The bank holds adequate provision on these accounts end December 2017, while would be required to make additional provisions in Q4FY2018.
As per the bank, the provisioning pressure would continue in Q4FY2018 with higher provision requirement for stressed as well as standard advances.
The bank has partnered with the Boston Consulting Group (BCG) for its transformation initiatives, aiming at total transformation of the bank. The bank has set up transformation cell within the bank headed by general manager and the work is under process of preparation of transformation report. With the focus on transformation, the bank aims to double its business in every 3 years and aims to achieve at least 1% market share by bank centenary year 2024. The bank also aims to achieve RoE of 18% and market valuation of 4 time price to book.
As per the bank, about 58.45% of the loan Book has shifted to MCLR based lending rate regime, while about 18.07% is at base rate and balance 23.03% on other rates.
With regard to IFRS regime, the bank is under the process of preparation of proforma balance sheet and expects its smooth transition to IFRS.
The bank has exposure 4 accounts with outstanding exposure of Rs 170 crore under 5/25 scheme, 4 accounts with the exposure of Rs 347 crore under S4A scheme and 4 accounts with exposure of Rs 183 crore under SDR scheme end December 2017. All these accounts are standard accounts and overlaps with restructured advance book.
The securities receipts on bank's book stands at Rs 450 crore end December 2017.
The bank has exhibited an improvement in cost-to-Income ratio to 50.2% in Q3FY2018.
The bank proposes to focus on leveraging the technology and aims to reduce cost-to-income ratio to 42 to 45% by FY2020. The bank is also aiming to achieve RoA of above 1% by FY2020.
The bank has toned down its branch expansion for FY2018. The bank would add only 35 branches in FY2018 to reach a level of 800 branches by March 2018.
The share of digital transaction has increased to 67%, while bank aims to improve digital transactions share to 80%.
The share of investment grade exposure in the corporate loan book stands at above 80% end December 2017.
The bank has started making provision for wage revision, under IBA, from November 2017.
The bank does not have amount pending to be amortized at end December 2017.

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