Karnataka Bank conducted a conference call on 23 January 2024 to discuss its financial results for the quarter ended December 2023. Srikrishnan Harihara Sarma, MD and CEO of the bank addressed the call:

Highlights:

The quarter ended December 2023 was very interesting as the bank has achieved so many things on the transformation agenda front. The focus is on process, product, people, technology and whole business. The bank has focused on new product launches and lateral hiring to strengthen the management.

The gross advances of the bank grew by Rs 10000 crore in 9MFY2024 to Rs 69740 crore end December 2023. The bank aims to touch the loan book of Rs 1 lakh crore by FY2026.

Deposits increased 9% yoy to Rs 92195 crore end December 2023. The CASA deposits grew by 8% yoy end December 2023.

The bank has continued to maintain Casa deposit ratio in the range of 31 to 32%.

The net interest income margin (NIM) stood at 3.46% which is within the guided range of 3.4-3.7%. The margins of the bank have been impacted mainly due to repricing of deposits.

The RoA of the bank was 1.21% which is in the targeted range of 1.2-1.4%.

The RoE at 14.28% for 9MFY2024 is within the targeted range of 14 to 17%.

The bank has raised provisions for wage revision from 15% to 17% with the additional incremental provisions of Rs 25 crore in Q3FY2024 for a period of November 2022 to December 2023.

With the improved growth in the income, the bank expects to reduce the cost to Income ratio to below 50% in next couple of quarters from existing 53% level.

The fresh slippage ratio for the bank was elevated at 0.8% on account of the slippages from the restructured loan book. The bank is monitoring the restructured loan book and the stress is expected to be recognized in next two-three quarters.

Within the restructured loan book of Rs 2000 crore, the bank expect the stress level at 30-35% or Rs 600 to 900 crore.

The fresh slippages of loans stood at Rs 516 crore, while the recoveries and upgradations were at Rs 173 crore and write offs at Rs 130 crore.

The SME segment accounted for 70-75% of the fresh slippages.

The restructured loan book of the bank is 95% collateralized, with the retail and the corporate mix stand at 50:50.

The provision coverage ratio (PCR) including write off stands at 81% and bank would maintain provision coverage ratio at existing level. PCR excluding write off was at 58% and the bank aims to raise it to 70% in next 18 months.

The bank aims to reduce gross NPA ratio to 3% in the next 6 months, supported by strong recoveries and accelerated provisioning.

The bank is repaid Tier II capital of Rs 400 crore carrying high coupon rate of 12% in November 2024 and the bank is looking at repayment of another Rs 320 crore of high coupon Tier II capital in February 2024.

Repayment of Tier II bonds is expected to support 8-9 bps improvement in the margins.

The bank does not have any exposure to AIF so there is no requirement of the provisioning.