KTKBANKNSEQ1FY24August 03, 2023

The Karnataka Bank Limited

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15analyst exchanges

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Management on call

Srikrishnan

MANAGING DIRECTOR, CHIEF

Sekhar Rao

EXECUTIVE DIRECTOR – KARNATAKA BANK LIMITED

Balachandra Y V

CHIEF OPERATING

Gokuldas Pai

CHIEF BUSINESS OFFICER – KARNATAKA BANK LIMITED

Abhishek Bagchi

CHIEF FINANCIAL OFFICER

Sham K

COMPANY SECRETARY – KARNATAKA BANK LIMITED

Key numbers — 40 extracted

rs,

n. I am Srikrishnan, the MD and CEO of Karnataka Bank. I am here on behalf of the Board of Directors, and I want to thank you for participating today. Joining me are Sekhar Rao, our Executive Director

INR 370.70 crore

results. We recently informed the stock exchanges about our highest-ever quarterly net profit: INR 370.70 crores, compared to INR 114 crores from the same period last year. Three critical metrics define our ba

INR 114 crore

d the stock exchanges about our highest-ever quarterly net profit: INR 370.70 crores, compared to INR 114 crores from the same period last year. Three critical metrics define our bank's performance: growth in

10%

in the book, and deposit growth. Our advances have seen a year-to-date annualised growth of about 10%, and for this quarter, we achieved 5.4%. Our deposits increased by nearly 8%, with a healthy CASA

5.4%

vances have seen a year-to-date annualised growth of about 10%, and for this quarter, we achieved 5.4%. Our deposits increased by nearly 8%, with a healthy CASA mix maintained at around 32% - 33%. His

sed growth of about 10%, and for this quarter, we achieved 5.4%. Our deposits increased by nearly 8%, with a healthy CASA mix maintained at around 32% - 33%. Historically, our CD ratio reached its p

32%

achieved 5.4%. Our deposits increased by nearly 8%, with a healthy CASA mix maintained at around 32% - 33%. Historically, our CD ratio reached its peak at 70%. Our net NPA decreased significantly to

33%

ved 5.4%. Our deposits increased by nearly 8%, with a healthy CASA mix maintained at around 32% - 33%. Historically, our CD ratio reached its peak at 70%. Our net NPA decreased significantly to 1.43%

70%

a healthy CASA mix maintained at around 32% - 33%. Historically, our CD ratio reached its peak at 70%. Our net NPA decreased significantly to 1.43%, down from the previous year. We've worked hard o

1.43%

- 33%. Historically, our CD ratio reached its peak at 70%. Our net NPA decreased significantly to 1.43%, down from the previous year. We've worked hard on recovery and controlling slippages, which curr

0.5%

previous year. We've worked hard on recovery and controlling slippages, which currently stand at 0.5%, compared to 3.31% last year. Even compared to the last quarter, there is a reduction of about 27

3.31%

've worked hard on recovery and controlling slippages, which currently stand at 0.5%, compared to 3.31% last year. Even compared to the last quarter, there is a reduction of about 27 bps. We also proud

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Guidance — 20 items

Srikrishnan

opening

“As we move forward, expect to hear more from Karnataka Bank under the tagline: "Banking with a legacy and embracing the future".”

Srikrishnan

opening

“Additionally, we've maintained our NIM guidance within the 3.5% to 3.71% range.”

Srikrishnan

opening

“And these are teams that will be deployed in branch serving areas in and around the branch to get the new to bank acquisitions.”

Srikrishnan

opening

“And we are just on the verge of launching many such journeys, whereby the digital channels of the bank, which include the mobile as well as our browser-based internet banking channels, will be translated, just not but transformational, but also everything to do with transactional.”

Srikrishnan

opening

“We believe that, this digital journey that we are undertaking will be far easier because the investment not only in technology, but investment into processes and we have also taken some help from external consultants here, whereby the analytics related to our existing customers on their behaviour, on what products they use, based on their transactions, what other products they could potentially use is being extracted.”

Srikrishnan

“Our initial target was to surpass INR 100,000 crores in our total asset book within that timeframe.”

Srikrishnan

“We plan to achieve this by strategically adjusting our asset growth and ensuring optimal pricing.”

Srikrishnan

“We aim to maintain this range, although it's influenced by seasonal variations.”

Srikrishnan

“As we further expand this segment, we anticipate additional opportunities to ensure our cost of funds remains within the targeted range.”

Sushil Choksey

“My next question is, your vision is more about co- lending, growing retail, and the bank was ready on technology, but I think the current management team brings a lot of bandwidth with the vision to empower the digital technology transformation to a next level and the next support which will be required for that is human resource.”

Risks & concerns — 7 flagged

While I'm more comfortable discussing a three-year outlook as I've mentioned in previous responses the real challenge lies in our strategic approach.

— Srikrishnan

Additionally, as we progress through two more quarters, some other stress in the portfolio will have gone through its lifecycle, further strengthening our position.

— Srikrishnan

We are cautious about increasing transactions without deriving the corresponding benefit in terms of balances.

— Srikrishnan

Having worked with several startup-like organisations in my previous roles, including three new banks, joining Karnataka Bank on its 100th year is a particularly interesting challenge.

— Srikrishnan

So, I also wanted to check that, some of the banks of your size, they have a business and risk responsibility lying with the same individual.

— Jai Mundhra

Is this the same process here, or the business and risk are entirely separate functions?

— Jai Mundhra

While there is pressure on the cost of deposits, we have some loans and new acquisitions on the loan book that are helping offset this pressure.

— Srikrishnan

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Q&A — 15 exchanges

Congratulations on a great set of numbers, and best wishes for all the aspirations which you just highlighted. Question number one, so you had given a broad vision in one of your media interactions when you commenced, what a journey to get to INR1 lakh crores, which means 18%, 20% growth year-on-year. Can you highlight a bit on that?

Srikrishnan

Thank you for your insights, Mr. Sushil. Our annualised growth rate currently stands at approximately 10% for our advances book, while our liability side is nearing 8%. Our goal is to double these figures within the next 3 to 3.5 years. This implies an 18% to 20% compounded quarter-on-quarter growth annually. To put it simply, within the span of 3 to 3.5 years, our figures should more than double their current state. Our initial target was to surpass INR 100,000 crores in our total asset book within that timeframe. Reflecting on our performance after the June results, without making any forwar

Good afternoon, sir, and congratulations on a good set of numbers. Sir, what would be your guidance for the growth rate in terms of both credit and deposit, as well as CASA? Where would you want to reach by the end of or the exit quarter of this financial year?

Srikrishnan

Good afternoon, Mr. Sarvesh. Thank you for your question. Based on our current trajectory, our annual growth rate for advances is approximately 10%, which places our current total advances at around INR 63,000 crores. Therefore, by the end of the financial year, we anticipate that this figure could likely reach between INR 73,000 crores and INR 75,000 crores. Regarding our CASA, our CD ratio presently hovers between 68% and 70%. Our ambition is to elevate this ratio. This implies that our assets will see faster growth than our liabilities, though we're confident that liabilities won't fall far

Yes, hello sir. Thanks for the opportunity, and congratulations on your appointment. Couple of questions, you laid out the reason for the next couple of years. So, sir, I was asking, you laid the foundation or reason for, what you are going to do in the next couple of years in terms of growing the bank or a couple of changes that you have highlighted. I just wanted to know, let us say, slightly from a longer-term next three years to five years, what kind of, let us say, products or segments will be in your focus. So, in terms of loan mix, what kind of loan mix, we'll see. Let us say, by 2026 o

Srikrishnan

Mr. Suraj, as is often said in sports, we must approach each game, each session, one step at a time. Drawing parallels from cricket, there are distinct strategies for different formats, and forecasting a three-to-five-year game plan requires us to deeply consider our current execution. While I'm more comfortable discussing a three-year outlook as I've mentioned in previous responses the real challenge lies in our strategic approach. We're currently emphasising three primary sectors: MSME, agriculture, and retail. Our growth strategy is three-pronged: utilising physical branch channels, sales c

Good afternoon, Chintan.

Chintan Shah

Good afternoon, sir. Thank you for the opportunity. Sir, just two- three data keeping questions from my end. Sir, firstly, if you could just provide the breakup of GNPA movement into slippages, write-off recovery and update for the quarter? Yes. Okay. And secondly, sir, also, could you just provide the breakup of loan book into fixed and floating and how much would be linked to a repo rate and MCLR? And lastly, sir, on the CASA breakup, if we could just have help us with the number of current CASA means CA and SA? And lastly, as on the income part, other income breakup... The first part relate

Thank you, sir and congratulations for your appointment. So first, in your presentation, you talked about retail share. I think that is a RAM share, right? Because retail, as such, it is very misleading. So that is number one, if you can change that in your presentation going forward. Sir, second is that, if you look at Karnataka Bank we have been tracking it for a long, long time. Is that the asset quality and particularly the MSME book always has been an issue in the bank whenever basically there are bad asset quality cycles, how do you try and contain this? you said that basically, I mean,

Srikrishnan

We're focused on refining our existing products and underwriting processes rather than making drastic changes. The bank has worked diligently to manage slippages, NPAs, coverage, and recoveries. Recognising the strengths of some bank segments, our objective now is to activate newer sectors. We're leaning on past experiences and harnessing digital data. For instance, by observing customer behavior, such as payments for rent or utilities, we can gauge their purchasing power. This insight allows us to offer pre-approved consumer loans based on their activity this is a direction we're keen on expl

Thank you for the opportunity. I just wanted to know what is the expected credit cost for FY’24 - 25 in percentage terms?

Srikrishnan

Currently, the credit cost stands at approximately 0.28%. Looking ahead, we believe there is a high likelihood of maintaining this level or potentially even reducing it further. By the end of the year, we anticipate that the credit cost will remain stable and be around the same level, Ketan. Same for FY 25 also? No, we anticipate a slight reduction, around 25 basis points, in the credit cost. The reason behind this reduction lies in our strategy to focus on digital acquisition. By creating a loan book that primarily comprises salary loans, flexi loans, and other related products, combined with

Thanks for the opportunity and sir, congratulations on a great set of numbers. The presentation which is being put out clearly outlines the vision which the management is looking forward, so this is really commendable. Sir, I had two questions to understand from you? One is more on the asset quality what is that we are looking in terms of the slippages run rate maybe in FY’24 as a whole, including any element of restructuring portfolio that might come out in the coming periods. So that's my first question?

Srikrishnan

Let me address that directly, Aalok. Currently, our slippage stands at approximately 0.5%. Looking ahead, compared to the previous quarter, we have witnessed a substantial reduction, and compared to the previous year, the reduction has been even more significant. This performance represents our best slippage figures thus far. Our goal is to maintain this positive trend and, at the very least, sustain the same level of performance for the remainder of the year. By achieving this, we can look forward to a healthy outlook by the end of the year. Additionally, as we progress through two more quart

Thank you so much for this opportunity and my apologies for previously unable to connect. I think there was a problem at my side on the voice track. So, at the outset, congratulations and compliments to the new team, especially the new CEO, Mr. Srikrishnan. So, we wish you all the best as our fortunes are also pretty much, kind of moved with how margin performs. So, my question basically is related to this pay book. You know, it's a pay book that is across the older banks where they already have a huge chunk of customers who have been banking with them for the last so many years. But then to t

Srikrishnan

Good afternoon, Manish. Based on my personal interactions with customers during branch visits over the last 40 days, I have visited about four to five regions, covering approximately eight branches in each region. This amounts to nearly 40 to 45 branches out of our total network. I have also engaged in discussions with a few invited customers. A key finding from these interactions is that customers are highly satisfied with the personal relationships they have developed with their branch managers and staff. They express strong loyalty towards the bank and have no intentions of moving elsewhere

Hi, good evening sir. I wanted to understand a bit on the verticalisation in the non-corporate products. So, retail, MSME, Agri, to what level these products have been verticalised and I think you had said that the branch managers or the select branch managers, they also have a good understanding of the underwriting practices. So, I also wanted to check that, some of the banks of your size, they have a business and risk responsibility lying with the same individual. Is this the same process here, or the business and risk are entirely separate functions?

Srikrishnan

Thanks for asking, Jai. This is about leveraging the bank's strengths in the right direction. We've made progress in verticalisation, appointing MSME National Head, Agri National Head, and separate teams for retail, branch banking, asset, and credit marketing. This ensures clear segregation between retail credit, mid-size corporate credit, and MSME credit. At both regional and head office levels, there's a structured approach with slab-wise credit sanctions. We have five regional processing hubs, expanding to eight, ensuring smooth flow from branches to regions and the national head office. Tu

Yes, sir. Sir, I missed your initial commentary. So, pardon me for repeating. For exit of FY ‘24, what should be our net NPA level? And NPA as a provision of books, what percentage are we eyeing, sir?

Srikrishnan

Sure, Saket. As mentioned earlier, our exit target for net NPA is around 1.2%, a notable improvement from the current 1.4%. Achieving this target relies heavily on robust monitoring practices. We aim to avoid any unexpected surprises, and at this stage, we have reviewed all regions and accounts, leading us to believe that we are on the right track to achieve our goal. And provision books, sir? As a percentage, the total loan book, what should be the provision book percentage? The PCR is 83%, as I told you. And for the core book, it is about 62% right now, core provisions. Okay, sir. And for th

Good afternoon Mr. Yaswanth.

Yaswanth Kumar

Yes, good afternoon, Srikrishnan. And congratulations on the results. And I had a couple of questions with respect to asset quality and the growth. I think you have already addressed that, so I will not repeat that question. So, yes, the question that I have now is with respect to the yield and advances. So last quarter, I remember Mr. Sekhar had identified advances which were yielding less than the government securities. So, I mean, having said this, there was some retiring of advances. So, similarly, I would want your inputs. Have you noticed anything of that sort? And at the same time, can

Yes, Hi, sir. Thanks a lot. So, I have a couple of questions. So, we have a couple of low hanging fruits currently in terms of the LDR number LCR number and we are in a scenario when the credit quality may remain fine for some time. And so, you have that much time, so you have that much time to ramp-up your business in that time. The question is that we would like to first take a proof of some opportunities that we have in terms of asset mix, LDR number being low, LCR number being very high. Is that the first thing that we are going to do or what is the plan that we have on the branch expansio

Srikrishnan

Absolutely, you are right. We recognise the existing strengths of the bank and have no intention of moving away from them. Instead, we aim to leverage these strengths to their fullest potential. As part of our strategic goals, we have provided clear targets to all branches and regions to increase the CD (Credit-Deposit) ratio. Initially, the CD ratio stood at around 60% when the new management, including myself and Sekhar, took charge. Through continuous efforts and process improvements, we have seen progress, and the CD ratio has now reached 70%. However, we are not content with 70% and aim t

Yes, Mr. Kapoor.

Saket Kapoor

Yes, sir. The point I was asking earlier on the ROA trajectory also, what the trajectory should be? And for the detection of NPA, how are we using technology, especially AI and the system processes, wherein we will have early detection of NPAs going ahead? And what portion of the loan book is attributed to a personal loan? And that too on the unsecured part. Sure, let me address your questions. Regarding ROA, it currently stands at approximately 1.47, and this figure may vary as we continue to grow our business. While we aim to work towards achieving our targets, we also understand that ROA is

So, thank you so much for your participation, from my side as a first time that I have met with the analyst. We have uploaded our investor presentation on our website. This is again, very clearly articulating all of whatever is required and as Sekhar is here and he's been in the bank even earlier than me by a couple of months. I'll hand over to Sekhar for him to do the concluding remarks of today's conference.

Sekhar Rao

Good evening, everyone. Thank you for the overwhelming response. We currently have around 285 participants, and I sincerely appreciate all of you for taking the time to be here. As Srikrishnan mentioned, this is an exciting time for the bank, with record profits and a clear vision for the future. We are a bank with a rich legacy, enthusiastic about embracing the opportunities the future holds. We have identified specific segments and businesses, namely MSME, Agri, and retail, which we will leverage for growth. Additionally, our extensive presence in various geographies will support our growth

Thank you, moderator, for handling this as well. Thank you so much for participants.

Management

Speaking time

Srikrishnan

Moderator

Chintan Shah

Sekhar Rao

Sarvesh Gupta

Suraj Das

Aalok

Manish Dhariwal

Saket Kapoor

Sushil Choksey

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Opening remarks

Srikrishnan

Thank you very much. Good afternoon, ladies and gentlemen. I am Srikrishnan, the MD and CEO of Karnataka Bank. I am here on behalf of the Board of Directors, and I want to thank you for participating today. Joining me are Sekhar Rao, our Executive Director, and senior management team members: Balachandra, our Chief Operating Officer; Abhishek Bagchi, our CFO; Gokuldas Pai, our Chief Business Officer; and Sham K, our Company Secretary. Today is historic day for us due to the new management's inauguration. Just to clarify, I have been with the bank for slightly under two months, and our new Executive Director has been on board for around four to five months. As we move forward, expect to hear more from Karnataka Bank under the tagline: "Banking with a legacy and embracing the future". Today, we are discussing the bank's future based on our recent quarterly results. We recently informed the stock exchanges about our highest-ever quarterly net profit: INR 370.70 crores, compared to INR 114

Sekhar Rao

Perfect. I think so you've covered it all. I will just add a couple of comments in the closing remarks. This is a pretty good summary of where we are headed and where we are.

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