Release Date: January 23, 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) reported an all-time high nine-month profit after tax of INR 1,032.04 crore, a 24% increase from the previous year.
- Gross advances grew to INR 69,740 crore as of December 31, 2023, marking a significant increase from INR 63,673 crore in December 2022.
- Total deposits reached INR 92,195 crore, the highest ever, reflecting a 9% year-on-year growth.
- The bank's net interest margin (NIM) remains within the guidance range of 3.4% to 3.7%, standing at 3.46% for the quarter and 3.57% for the nine-month period.
- Karnataka Bank Ltd (BOM:532652) has made significant progress in its transformation agenda, including new leadership hires and technology upgrades.
Negative Points
- The cost-to-income ratio increased to 53% due to higher expenses, including a 17% wage hike settlement and investments in technology.
- Slippages remain a concern, with a slippage ratio of 0.8%, primarily from the SME and MSME segments.
- The gross NPA ratio slightly increased to 3.64% from 3.47% in the previous quarter, indicating ongoing asset quality challenges.
- The bank's CASA ratio has been under pressure, maintaining at 31% to 32% despite efforts to improve low-cost deposits.
- There is a significant portion of restructured assets still under stress, with around INR 700 crore identified as potentially vulnerable.
Q & A Highlights
Q: Hi. Thanks for the opportunity. Sorry, I missed your earlier part of your statement. Your read bit of guidance on your growth going ahead and also your credit costs, if you could provide something on that?
A: Thanks, Narendra. Good evening. Our gross advances on YTD basis have grown at 18%, standing at INR69,740 crore as of December 31, '23. We expect this run rate to continue. We are committed to crossing INR100,000 crore by 2022. Regarding credit costs, it's currently at 0.25%, and we believe it will remain at this level.
Q: Regarding your cost of funds, sir. So I see that cost of deposits are going up. So at what level should it stabilize? Are there further chances of hike in cost of deposits?
A: The market has been facing a challenging interest rate scenario. Many experts predict rates will come down by mid-2024. Currently, low-cost deposits are hard to come by, affecting all banks. We have not engaged in high-rate bulk deposits, focusing instead on our long-term current and savings account holders.
Q: And regarding other income, so how should that plan out for the next couple of years?
A: We are focusing on cross-sell and penetration, leveraging our Analytics Center for data-driven acquisition strategies. We have tied up with new partners for life and non-life insurance, including HDFC Life and Bajaj Allianz Life. We expect these initiatives to boost our other income significantly.
Q: Regarding your OpEx, as going ahead, would the investment slow down or we still going ahead full steam on the tech side investment?
A: We are well-positioned on core banking, data lake, digital journey, and infrastructure. Future tech expenses will be mainly CapEx, focusing on integration with collaborative businesses like Fintech and Wealth Management. We aim to keep our cost-to-income ratio below 50% by FY25.
Q: First question was on asset quality. If you can indicate, what is the movement in GNPA during the quarter, that is slippages, recoveries and upgrades and technical write off?
A: The GNPA has improved to 3.64% from 3.74% in March. Slippages for the quarter were INR516 crore, with recoveries and upgrades at INR174 crore and write-offs at INR129 crore. Most slippages are from the SME and MSME segments.
Q: Any assessment of what is this kind of vulnerable pool within the restructuring which is sitting in the bank currently?
A: We've made accelerated provisions in recent quarters. We estimate that 35% to 40% of the current restructured book, around INR2,000 crore, is stressed. However, we are actively managing this through branch-level engagement and believe the impact will be controlled.
Q: My question is on the loan growth. So, it has been observed that this quarter, the bulk of the growth is there from the corporate and it is from the large enterprise segment, which typically is low yielding. And also, that impact is seen on the NIMs.
A: The growth in advances has been at 18.5%. The NIM compression is mainly due to higher deposit costs, a challenge faced by all banks this quarter. We have not engaged in high-cost bulk deposits, maintaining a CD ratio of 75%. We aim to keep NIM margins between 3.4% to 3.7%.
Q: What kind of interest savings are we seeing from the bonds which we are likely to redeem?
A: The bonds are at 12%, and the current market rate is around 6% to 6.5%. We expect significant savings, potentially improving our NIM by 8 to 10 bps.
Q: My question is on CASA ratio front. So, I've been following up, and then there are quite I mean, therefore, few details which has been shared with the exchange with respect to government businesses are open, and we are also opening the platform in order to do a GST and other forms of government business.
A: Our CASA ratio has been about 31% to 32%, even in this challenging quarter. We are focusing on government collections and increasing our current account and agri portfolio deposits. This is part of our regular seasonal trend.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
