KTKBANKNSEQ4FY23March 31, 2023

The Karnataka Bank Limited

9,935words
104turns
11analyst exchanges
4executives
Management on call
Sekhar Rao
MANAGING DIRECTOR AND CEO (INTERIM)
Balachandra Y V
CHIEF OPERATING OFFICER
Gokuldas Pai
CHIEF BUSINESS OFFICER
Abhishek Bagchi
CHIEF FINANCIAL OFFICER
Key numbers — 40 extracted
475 basis point
worldwide, including India, responded with aggressive rate hikes. The U.S. led the way with around 475 basis points, while the RBI raised the repo rate by 250 basis points. This both benefited and tightened operat
250 basis point
e hikes. The U.S. led the way with around 475 basis points, while the RBI raised the repo rate by 250 basis points. This both benefited and tightened operations for banks, presenting both advantages and challenge
rs,
erations for banks, presenting both advantages and challenges. Moreover, many banks, including ours, have focused on digitization, and we anticipate this trend to accelerate. On the economic front, co
INR 1,180 crore
improved, and for the first time, our bank has declared a net profit in four figures. It stands at INR 1,180 crores, which is nearly INR 100 crores per month. Coincidentally, we're celebrating our centenary year,
INR 100 crore
ur bank has declared a net profit in four figures. It stands at INR 1,180 crores, which is nearly INR 100 crores per month. Coincidentally, we're celebrating our centenary year, and we believe this achievement
INR 353.75 crore
ndwork in these areas and plan to build upon it moving forward. The net profit for Q4 was around INR 353.75 crores, a year-on-year growth of 171.39%. Last year in the same quarter, it was INR 130.34 Cr. Another i
171.39%
it moving forward. The net profit for Q4 was around INR 353.75 crores, a year-on-year growth of 171.39%. Last year in the same quarter, it was INR 130.34 Cr. Another important point to note is that othe
INR 130.34
around INR 353.75 crores, a year-on-year growth of 171.39%. Last year in the same quarter, it was INR 130.34 Cr. Another important point to note is that other income, excluding depreciation and trading profit
INR 1,155.50 crore
tant point to note is that other income, excluding depreciation and trading profit, also stood at INR 1,155.50 crores. This also represented a healthy 15% increase over the last year. During the quarter, the operat
15%
epreciation and trading profit, also stood at INR 1,155.50 crores. This also represented a healthy 15% increase over the last year. During the quarter, the operating profit exhibited a growth rate of
80.41%
increase over the last year. During the quarter, the operating profit exhibited a growth rate of 80.41%. Net interest income during the quarter rose by 31%, and for the full year, 27.86%. We've seen im
31%
operating profit exhibited a growth rate of 80.41%. Net interest income during the quarter rose by 31%, and for the full year, 27.86%. We've seen improvement in our NIM, reaching 3.87%, compared to 3.2
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Guidance — 20 items
Sekhar Rao
opening
“Moreover, many banks, including ours, have focused on digitization, and we anticipate this trend to accelerate.”
Sekhar Rao
opening
“We've laid the groundwork in these areas and plan to build upon it moving forward.”
Sekhar Rao
opening
“We also expect significant improvement in asset quality.”
Sekhar Rao
opening
“One more promise I want to make to all of you is that we plan to increase our interaction with you and seek your feedback on an ongoing basis, rather than just once a year.”
Sekhar Rao
qa
“We have a great deal of customer goodwill and we plan to leverage this to increase our focus on retail.”
Sekhar Rao
qa
“We intend to deepen this process to further enhance customer experience.”
Sekhar Rao
qa
“Given these capacity enhancements and the investments we're making in technology, we hope to see a significant uptick in our retail market share.”
Sekhar Rao
qa
“Additionally, we've initiated another important project - setting up analytics centre of excellence.”
Sekhar Rao
qa
“Our current product penetration is between 1.5 to 2, and we plan to increase it further.”
Sekhar Rao
qa
“However, we are optimistic that this will be offset by a change in product mix, business growth, and other income.”
Risks & concerns — 11 flagged
Regarding this restructured book, like I said, almost 90% of these accounts are repaying, and we only see stress in about 8% of them.
— Sekhar Rao
Now my whole concern or the question is surrounding the growth, which is not coming at a high credit loss.
— Manish Dhariwal
And so, sir, as we anticipated that the decline in the interest rate going ahead, there could be some pressure on the NIM.
— Sekhar Rao
We've identified certain talent gaps, specifically in middle and senior roles in technology, transaction banking, and product management, as well as some areas of risk.
— Sekhar Rao
It is important to note that while there may be some slowdown in areas like debit cards and ATMs due to the impact of UPI, this will be offset by growth in transaction banking fee income and third-party fee income.
— Sekhar Rao
The higher proportion is influenced by various factors that occurred over the last two years, such as the rising interest rate scenario and the impact of the COVID-19 pandemic.
— Sekhar Rao
In our credit monitoring department, we extensively leverage technology to track early warning signs and identify potential instances of stress.
— Sekhar Rao
This dedicated centre will strengthen our early warning sign systems, allowing us to identify accounts showing signs of incipient stress at an early stage.
— Sekhar Rao
These efforts will enable us to proactively address emerging issues and take appropriate actions to mitigate risk.
— Sekhar Rao
So going forward, one is on the retail strategy that, so from a risk-weighted asset standpoint, would we kind of see an increasing risk on the book?
— Deb Bhattacharya
So it's range-bound between somewhere if you see the risk-weighted assets, it's around INR53,000 crores right now against the December number of INR54,000 crores.
— Sekhar Rao
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Q&A — 11 exchanges
Q
Congratulations to Karnataka Bank on the centenary celebration and the performance which you achieved in F.Y. '23 Sekhar. Referring to the comments which you made in media and right now of your joining the bank this year and the new M.D. coming in, what is the broader vision of Karnataka Bank in terms of perspective which you would like to see over a period of 1 decade or two decades because it's one bank which has never lost money in any of the financial years of last 100? As we see it, while we aren't planning for a decade out, it's clear that we have a robust network. We are a recognized br
Sekhar Rao
Bank. This analytics centre will use data analytics to enhance our understanding of our customers, propensity modelling for preapproved loans, and cross-selling. Our current product penetration is between 1.5 to 2, and we plan to increase it further. These are some of the strategies and thoughts that we are rolling out for the next three years. Okay. My follow-up question is a couple of points that you've highlighted. So what is your expectation on NIM, cost of funds, and ROE for coming years? What kind of provisions have you taken or have you taken some provisions for slippages. And what was
Q
So, on accelerated provisions as a follow-up. So basically, you are saying that out of the INR330-odd crores provisions, INR250 crores was sort of more than what we were required to take, and we took it because we had healthy profitability for the year and the quarter?
Sekhar Rao
Yes, yes. That would be the right assessment of that. So close to INR79 crores as per IRAC and balance on account of accelerated provisions. So ideally, these will not recur in the coming years. This INR250 crores? Yes, these will not recur in the coming years. And these are one-offs. So whenever you see an opportunity, you take these measures as a prudent measure. And on our restructured book, so that came down from, let's say, INR41 crores, INR42 crores of standard restructured which was there last year. Now we have around, I think, INR2,500 crores odd. And this reduction also contributed to
Q
Yes. So there are a lot of reasons for celebration at Karnataka Bank. So it's a centenary year. Then a management change. And you have come out with fantastic numbers. So congratulations for all of that.
Manish Dhariwal
Now my whole concern or the question is surrounding the growth, which is not coming at a high credit loss. So while Karnataka Bank is a good brand surrounding Karnataka and other places, but then I think the other banks also are claiming the same. And the confidence that the management has expressed about growing higher than the industry is something that if you could maybe give more insight. And what do we understand about the credit costs going ahead? How would one look at that? So growth is in sync with the emerging credit cost. So I believe your question has two parts. One is about your gr
Q
Congratulations on a good set of numbers. One, two questions from my end. Sir, firstly, in terms of our loan book, in terms of fixed and floating, how much percentage of our book will be pegged rate and floating, if you could help with those numbers? To help you understand the proportion of floating to fixed-rate loans in our portfolio, here's the breakdown. About 79% of our loans have a floating interest rate. The details are as follows: about 1% are linked to the base rate, 22% are linked to the Marginal Cost of Funds Based Lending Rate (MCLR), and the majority, approximately 56%, are linked
Chintan Shah
Sure, sure. So this is on the growth side, sir. It will largely be driven by the retail piece, right, if I'm not wrong? Yes. Credit growth will be strategically on the retail piece. But we will take tactical calls as and when required on the corporate and mid-corporate pieces as well. Sure. And sir, you mentioned 1 to 1.5 percent plus/minus on the OPEX. So that was the opex-to-asset ratio, right, or cost-to-income? Cost-to-income. Okay, okay. Cost-to-income. got it. And also, on the recovery in TWO, so I think we have seen quite a steep recovery in TWO for us as well as for the system during t
Q
Sir, I wanted to get your views on the retail strategy, right? So if you can elaborate on that? You have said that retail is going to be the key driver for growth, and that is where you want to sort of increase the product per customer as well. You clearly have a retail franchise in terms of customers. But I wanted to check what is your, let's say, key target segment. Is it going to be a self-employed segment? Or do you have any vision for, let's say, prime salaried customers also? And then the associated question would be that what is it that probably will give us the right to win in this seg
Sekhar Rao
Right, sir. And, sir, in terms of investment in retail, right? So all the retail is high touch, lower ticket size relative to corporate, SME, and more effort involved. So where are we in terms of this investment phase? Or is it more likely that the OPEX growth will be at least for the next 6 to 12 months will be much higher than the loan growth as you build the processes, systems, etcetera? That's a great question, and it allows me to emphasize a key point. I believe our franchise is currently underleveraged. We have 901 branches, and we are in the process of reorganizing our retail hubs, grow
Q
Congratulations on the good set of numbers. I have just two questions. One is with regard to the appointment of Mr. Sarma. So when will he be assuming the charge?
Sekhar Rao
Yes. He will be assuming charge shortly. In fact, the selection was made almost a couple of months or a little more than that back. And as you know, there's a process of RBI approval, which has been received. Okay. So his involvement right now is nothing as of now? As of now, of course yes. Yes. And my other question is with regard to the loan growth, sorry, the average loan ticket size. So what is the average ticket size for your different segments like retail, mid-corporate, and large corporates? So retail, including agri, is INR 9.67 lakhs. Mid-corporate would be around INR16.13 crores. Lar
Q
So the first question is with respect to total cash balances, the income on the cash balances is gaining no interest income. But we have a total on an average, we are holding close to around INR5,500 crores, and our income is slightly low. So other than CRR, are we not like earning anything on the call money market or other markets, money markets?
Sekhar Rao
No, of course, we are earning on-call money. We have excess SLR. So while the cash with RBI is strict as per requirement, the balance is deployed in suitable money market instruments. And yes, currently, we do have excess SLR, which we recognize. No, sir. What is the total income that we have accrued in this quarter from cash balances? Let me get back to you on this as we go through the other questions. I'll very quickly get back to you on the income from cash balances. Because for the year, I see it is INR1.58 crores for this F.Y. '23. And for this quarter, it is INR0.2 crores. Yes. I'll come
Q
Sir, could you first provide some insight into the Return on Assets (ROA) situation? We concluded Q4 with a ROA of 1.4%, and our average for Fiscal Year '23 was 1.21%. What trajectory should we anticipate for the ROA? Regarding the Net Interest Margin (NIM), I understand from your comments that it will range between 3.5% and 3.7%.
Sekhar Rao
I believe I've addressed the ROA trajectory as well. We anticipate it to remain relatively steady, around the current year's level, with a slight increase on the optimistic side. Therefore, we do not foresee any significant surge in ROA moving forward. So this 1.2% will be maintained. 1.4% was an anomaly for the fourth quarter then. Yes, it will be. I earlier also during the call, gave a number, and we would be around that level. 1.2%? Yes. Slightly more than 1.2%, yes. Okay, sir. And for the capital raising part, sir, currently, we have a CRR of about 17.45%. So what is the outlook on the cap
Q
And the next question is on the establishment expenses. So do we foresee that it could continue in coming quarters as well? So, as we mentioned earlier in the call, we have observed positive indications of the changes we made on the retail side in the past two months, and we anticipate this momentum to continue. There has been increased activity in areas such as gold loans, home loans, and to some extent, the MSME space. We have implemented a robust agri co-lending model, and have already disbursed a significant amount through this arrangement. Additionally, we have more collaborations in the
Sekhar Rao
Yes. Yashwant Thippeswamy: Is that what you said? Okay. Perfect. And coming to the other income part of it. So, I mean, I understand that the strategy is to focus more on retail and gold loans especially. So having said this, I understand that there should be a right balance in improving the other income as well. So are there any thoughts that are calling on that side? Yes, regarding other income, we have already achieved INR 1,155.60 crores, excluding trading profits and depreciation. This income is well-distributed across various categories. We have made good progress in terms of banking fee
Q
Sir, just a couple of questions. So one is on the restructured accounts. So I just saw that the provision is around 10%. So in your opinion, what could be the percentage, are we like well provided there? Or would there be any further slippage or so just your view on that as well?
Sekhar Rao
So, our standard restructured provision stands slightly higher, approximately around 13%. We continuously assess the opportunity to increase provisioning whenever it is supported by our financials and considered a prudent decision, as we did in the fourth quarter. It is noteworthy that almost 90% of the restructured book is performing well, with customers repaying their obligations in the three mentioned buckets. I stand corrected. The current provisioning stands at 10.31%. However, it is important to mention that the quality of the book has significantly improved. The restructured book curren
Q
I was a little confused when you replied saying that it is on the interbank some borrowing that we had taken. So in the interest expense lines, do we not include interbank borrowings and the RBI borrowings number? How do we do it? Like we net it off from the income line? Like, how do we do that? Because there is a separate line item in the interest expense for interbank borrowings.
Sekhar Rao
So I'll request my colleague, Mr. Abhishek, will take this question. Yes. I was answering on the interest income side. As majority part of this year it was on a borrowing side. So it is the income on the asset and the overnight market lending. That is the interest income I was referring to. Interest expenses are accounted for separately under the expenses schedule. Does that answer your question? I think we can discuss it separately, sir. You can mail me across. And I'll be replying, Okay? Sure, sir. Sure, sir.
Speaking time
Sekhar Rao
52
Moderator
12
Rakesh Kumar
7
Sarvesh Gupta
6
Hitendra Gupta
6
Saket Kapoor
5
Deb Bhattacharya
5
Sushil Choksey
3
Chintan Shah
3
Abhishek Bagchi
3
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Opening remarks
Sekhar Rao
MR. SEKHAR RAO – MANAGING DIRECTOR AND CEO (INTERIM) MR. BALACHANDRA Y V – CHIEF OPERATING OFFICER MR. GOKULDAS PAI – CHIEF BUSINESS OFFICER MR. ABHISHEK BAGCHI – CHIEF FINANCIAL OFFICER Ladies and gentlemen, good day, and welcome to Karnataka Bank's Q4 F.Y. 2023 Audited Earnings Conference Call hosted by Karnataka Bank. As a reminder, all participant lines will be in listen-only mode, and you will be able to ask questions after the presentation concludes. If you need assistance during the conference, please signal an operator by pressing the star and zero on a touchstone phone. Please note that this conference is being recorded. On behalf of Karnataka Bank, today's call is attended by Mr. Sekhar Rao, Managing Director, and Chief Executive Officer (Interim); Mr. Balachandra Y V, Chief Operating Officer; Mr. Gokuldas Pai, Chief Business Officer; and Mr. Abhishek S. Bagchi, Chief Financial Officer. I now hand the conference over to Mr. Sekhar Rao, to give his opening remarks before the Q
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