Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Karur Vysya Bank Ltd (BOM:590003, Financial) reported a strong start to FY25 with consistent and inclusive performance.
- The bank's total business grew by 4% to INR1,70,059 crore as of June 30, 2024.
- Retail advances grew by 7% QoQ, driven by jewel loans, mortgages, and personal loans.
- Net Interest Margin (NIM) remained strong at 4.13%, with expectations to maintain above 4% in the next quarters.
- Gross NPA reduced to 1.32%, with net NPA at 0.38%, indicating improved asset quality.
Negative Points
- Corporate book saw a decline of 2% during the quarter due to lower disbursements and repayments.
- Cost of deposits increased by 12 basis points sequentially, indicating rising funding costs.
- The bank's operating expenses grew by 4% sequentially, impacting the cost-to-income ratio.
- There was a significant increase in tax provisions, impacting net profit margins.
- The bank faces challenges in deposit growth due to competitive pressures and other opportunities available for depositors.
Q & A Highlights
Q: The yield on advances increased by only 2 basis points despite an MCLR hike. Can you explain why the increase wasn't more significant?
A: (B. Ramesh Babu, CEO) Only 40% of our book is under MCLR, and repricing happens at specific intervals. Additionally, there is pricing pressure from competitors, and we sometimes offer concessions to retain long-term customers. The overall impact of these factors means the yield increase will be gradual.
Q: There was a sharp 24% QoQ growth in jewel loans. What drove this increase?
A: (B. Ramesh Babu, CEO) The base was low, making the percentage increase appear larger. We made a conscious effort to win back existing customers through targeted campaigns and improved delivery and release processes. Our existing product and pricing are competitive, and our focus on efficient service delivery has driven growth.
Q: The MSME segment grew by 22%. Is this growth sustainable, and are you focusing on larger ticket sizes?
A: (B. Ramesh Babu, CEO) We have extended some relaxations to higher ticket sizes based on past performance and low delinquency rates. The growth is driven by increased demand, better branch performance, and higher availment. While we may not sustain 20% growth every quarter, our focus on the MSME segment remains strong due to its secured and better-yielding nature.
Q: There was a pause in the growth of the BNPL portfolio this quarter. Are you seeing any stress in this segment?
A: (B. Ramesh Babu, CEO) The growth pause is not due to stress but rather seasonal demand fluctuations. We saw significant growth during last year's festive season, and we are maintaining current levels. Our monitoring systems show no significant stress, and we are covered by FLDG agreements.
Q: How are you managing succession planning and grooming the second and third layers of management?
A: (B. Ramesh Babu, CEO) We have a buffer of one or two people for every senior position and rotate them across different verticals to build expertise. We also provide institutional training to develop management capabilities, ensuring seamless transitions when senior personnel leave.
Q: Can you explain the increase in tax provisions this quarter compared to the previous quarter?
A: (R. Ramshankar, CFO) Last year, there were uncertainties regarding the IBM settlement, leading to higher provisions. This year, the effective tax rate is around 25.2%, which aligns with our expectations.
Q: What is the impact of the new AFS reserve creation on CET1?
A: (R. Ramshankar, CFO) The AFS reserve creation had a positive impact of INR5 crore on CET1, which is a very minuscule change given our overall capital base.
Q: Why has the LAP book grown rapidly, and why has the NBFC exposure been reduced?
A: (B. Ramesh Babu, CEO) The LAP book offers better yields and is fully secured, making it an attractive option. We assess cash flows to ensure loan serviceability. The NBFC exposure was reduced due to RBI guidelines on additional capital and potential risks associated with NBFCs.
Q: What is the impact of the Telangana government's farm loan waiver on your portfolio?
A: (B. Ramesh Babu, CEO) Our agriculture portfolio is predominantly jewel loans, which are secured. The waiver will be paid by the government, so we do not expect a significant impact. However, there may be a slight shift in repayment culture.
Q: Can you provide more details on the movement of investment reserves?
A: (R. Ramshankar, CFO) The investment reserve was moved to the general reserve as per new guidelines. The net impact of this transition is P&L neutral, with a positive impact of INR81 crore on reserves.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
