Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Karnataka Bank Ltd (BOM:532652, Financial) recorded the highest business turnover in its history at INR1,75,619 crores, up by 17.1% YoY.
- The bank achieved its highest quarterly profit of INR400.33 crores for Q1 FY25, an 8% increase YoY.
- Gross advances reached a record high of INR75,455 crores, reflecting a 19.7% YoY growth.
- Net interest income (NII) increased to INR903 crores in Q1 FY25 from INR834 crores in the previous quarter.
- The bank's return on equity (ROE) improved to 14.45% for Q1 FY25, up from 13.71% in the previous quarter.
Negative Points
- The CASA deposit ratio decreased to 30.55%, indicating a need for improvement in this area.
- Net NPA increased slightly from 1.58% last quarter to 1.66%, primarily due to delayed recoveries.
- Provision coverage ratio (PCR) decreased to 78% from 79% in the previous quarter.
- The yield on advances has been declining, attributed to competitive repricing and rate concessions.
- The cost of funds increased to 5.57% for Q1 FY25 from 5.42% in the previous quarter, reflecting market-wide liquidity tightness.
Q & A Highlights
Q: My first question was regarding slide number 11 of the investor presentation. The yield on advances has come down from 9.95% in Q1 FY24 to 9.52% in Q1 FY25. Why is this happening despite the upward trend in interest rates?
A: The decline is primarily due to the repricing of our historical book, driven by competitive bids and concessions on retail housing loans. The blended rate of new advances and these concessions has resulted in the lower yield. We expect this trend to continue until September, with a potential reversal in the interest rate cycle anticipated later.
Q: Our NIM has increased from 3.3% to 3.54%. What explains this, and is it related to the capital raised last quarter?
A: The increase in NIM is partly due to the capital raised and partly due to an INR80 crore tax refund. However, the capital raise of INR1,500 crores and the retirement of INR720 crores of Tier 2 capital at 12% have been significant contributors.
Q: What is the credit cost guidance for the year?
A: We are targeting an overall credit cost of around 1% for the year. While we hope it will be slightly lower, we are prepared for it to be between 0.9% and 1%.
Q: Almost one-third of the slippages seem to be coming from the restructured book. When will these slippages taper off?
A: Out of the INR416 crores in additions, only INR81 crores came from the restructured book. The retail part of the restructured assets is performing well, and we expect a downward trend in slippages over the next two to three quarters.
Q: The provision coverage ratio (PCR) has come down by 200 basis points sequentially. What is the outlook on this?
A: We have implemented account-level provisioning and are balancing profitability with PCR. We aim to reach 80% PCR in the next two to three quarters.
Q: The gross NPA in the retail segment has increased from 2% to 4% sequentially. What is causing this, and which segments are showing pain?
A: The increase is primarily from the historical book pre-COVID. The retail book is performing well, but the mid-market and agri segments, especially the contractor segment, have shown some stress due to delayed payments from government departments.
Q: What kind of growth in deposits and advances can we expect for FY25?
A: We are targeting a 19% growth in advances and a 13% to 15% growth in deposits for FY25.
Q: What is the credit cost guidance for FY26 and FY27, and what is the outlook on other income?
A: For FY25, we expect credit costs to be around 0.9% to 1%. It's premature to provide guidance for FY26 and FY27, but we aim to maintain a healthy trend. Other income, currently at INR275 crores for Q1 FY25, is expected to grow through increased traction in trade, ForEx, digital products, and third-party product distribution.
Q: Are we facing issues in the market regarding deposits, and will it impact our cost of funds for a longer duration?
A: The competition for deposits is a market-wide phenomenon. We are focusing on long-term stability and stickiness rather than short-term gains. Our branch relationships and new product offerings are helping us maintain a stable deposit base.
Q: What is the target for technically written-off accounts and their recovery?
A: Our gross NPA is INR2,668 crores, and the technical write-off book is about INR2,900 crores. We aim to recover around INR400 crores from the technical write-off book this year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
