KTKBANKNSEQ2FY24November 02, 2023

The Karnataka Bank Limited

10,721words
70turns
11analyst exchanges
2executives
Management on call
Srikrishnan H
MANAGING
Sekhar Rao
EXECUTIVE DIRECTOR – KARNATAKA BANK LIMITED
Key numbers — 40 extracted
INR700.96 crore
want to also report to all of you that we have had an all-time high FY '24 half-year profit, PAT, INR700.96 crores as against INR525.81 crores for the previous corresponding half year in September '22. And this
INR525.81 crore
f you that we have had an all-time high FY '24 half-year profit, PAT, INR700.96 crores as against INR525.81 crores for the previous corresponding half year in September '22. And this is an increase of over 33.31%
33.31%
crores for the previous corresponding half year in September '22. And this is an increase of over 33.31%. As regard to this quarter, we have made a profit of INR330.26 crores, and there is a decrease co
INR330.26 crore
r '22. And this is an increase of over 33.31%. As regard to this quarter, we have made a profit of INR330.26 crores, and there is a decrease compared to the previous quarter. That is basically due to our treasury
9.27%
concerned. On the positive part, gross advances, which is a key metric for the bank has grown by 9.27% on an annualized basis. We closed September '23 with INR 66,935.98 crores. And this is a significa
INR 66,935.98 crore
a key metric for the bank has grown by 9.27% on an annualized basis. We closed September '23 with INR 66,935.98 crores. And this is a significant increase from the last quarter as well as the corresponding quarter of
10%
es led growth. On the deposit side, we have grown compared to the market, which is growing about 10% to 12%, we have grown about 10 % on an annualized basis. Our total deposit stands at INR89,532 cro
12%
growth. On the deposit side, we have grown compared to the market, which is growing about 10% to 12%, we have grown about 10 % on an annualized basis. Our total deposit stands at INR89,532 crores. An
10 %
side, we have grown compared to the market, which is growing about 10% to 12%, we have grown about 10 % on an annualized basis. Our total deposit stands at INR89,532 crores. And this is again on average
INR89,532 crore
ng about 10% to 12%, we have grown about 10 % on an annualized basis. Our total deposit stands at INR89,532 crores. And this is again on average grown closer to 10%. We're also happy to report that the business t
INR1,54,954 crore
o 10%. We're also happy to report that the business turnover of the bank is INR1,54,954 crores, and this is a very important milestone for the Karnataka Bank. Our CD ratio has been continuou
69%
tio has been continuously improving. When we started this financial year, we were somewhere in the 69%. And as we closed out the September quarter, we have gone up to 73%. That is really a very clear
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Guidance — 20 items
Srikrishnan H.
opening
“ROE stands at 16.47% for the half year and ROA stands at 1.37%, well within the guidance that we have provided already.”
Srikrishnan H.
opening
“We believe that as we grow our revenue and as we make sure that our income is accruing from these investments, in the following couple of quarters, we will bring it back to our original guidance of 47% to 50%.”
Srikrishnan H.
opening
“We believe that the INR400 crores retirement at 12% and augmenting that with further capital, which has been Tier 1 and also the strong liability franchise, we will be in a better position because we have no pressure on the CRAR part due to this.”
Srikrishnan H.
opening
“This is existing customers of the bank, ETB and the digital part of it will be new to bank customers (NTB).”
Srikrishnan H.
opening
“This is, again, fully digital in terms of the process and the gold loan will be delivered at the door steps.”
Srikrishnan H.
opening
“Now as far as the bank is concerned in terms of the target segments, the target segments that we had originally been chasing continues to be focused right now with about 570 branches in Karnataka and outside of Karnataka more than about 330 branches are there.”
Srikrishnan H.
opening
“During the quarter, which is currently running, where we will be launching our new corporate website and making sure that there's a lot of these partnerships with MSME based portals for engagement as well as for life cycle management of couple of the MSME, not just merely lending to them, but also looking at what other requirements they are looking for from a banking or from an overall digital perspective.”
Srikrishnan H.
opening
“So those of you who are on the call, you will be able to access this and also understand our commentary, both in terms of strategy, in terms of the milestones achieved as well as the road map for the future.”
Srikrishnan H.
qa
“Any visibility whether you will do it now or you will do it a quarter later or you will spill over to next year?”
Srikrishnan H.
qa
“So we believe that, again the first round of our deployment has already happened, and that would be again 50% of the deployment that we want, because over the next 2 quarters, which is the balance of this quarter and the next quarter, that's like by March, we believe that our target is to have about 1,000 feet on street on the ground.”
Risks & concerns — 7 flagged
Now despite the pressure on the interest rates because there are a lot of other market players on the deposits, where there is a significant increase which is being provided.
— Srikrishnan H.
We believe that the INR400 crores retirement at 12% and augmenting that with further capital, which has been Tier 1 and also the strong liability franchise, we will be in a better position because we have no pressure on the CRAR part due to this.
— Srikrishnan H.
This is something which is very granular, so that we do not have any chunky exposures and we do not have any associated risk related to that.
— Srikrishnan H.
One is that our cost of deposits where we do have some pressure, but we believe that the deposit rates went high would get kind of flat out as we go forward.
— Srikrishnan H.
The head office of the bank continues to be in Mangalore and all the operating departments, which are essentially including support plus credit risk monitoring, etc, all of that happens and the centralized processing that I talked about earlier, also will be based out of Mangalore.
— Srikrishnan H.
So we believe that the bank is appropriately place for taking the risk related to growth and asset book on various new asset classes, which otherwise the bank has not gone into in the past.
— Srikrishnan H.
And also, sir, on the deposit repricing, so are we done with the deposit repricing or we are yet to see some more pressure on the existing deposits?
— Srikrishnan H.
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Q&A — 11 exchanges
Q
Congratulations to team Karnataka with stable number, and you've already explained why there was a provision this year, and there was a write-back last year with MMTC. And let's come to the fund raise, it was a successful fund raiser for that INR800 crores and you're planning the INR700 crores. Any visibility whether you will do it now or you will do it a quarter later or you will spill over to next year? Sir, we are very clear that we want to complete it before the financial year end, which is March. But, the way that we had exercised and we have gone through this whole exercise for the first
Srikrishnan H.
I think you have summarized it perfectly. Now all these enablers, you may launch multiple products, whether it's housing, education, or MSME. Do you see which area you would grow from the current branches or centralized process, whatever you do? Or are you going to change mix because currently, I think Karnataka is almost 40% of our business, and there's pan India. Do you see any particular part from growth engine, which you would like to move towards? The strength of the bank in terms of underwriting capabilities as well as our exposure management, etc, remains in retail, rural and MSME. And
Q
Sir, the first question is on the other income, which seems to have not grown this quarter. So there is a Q-o-Q fall as well as even Y-o-Y. So can you explain that, sir?
Srikrishnan H.
So essentially what has happened is that from an overall product coverage perspective, the bank has not invested a lot into the product. So I must be upfront about this in terms of what we have done. The second is that the fee income for the first quarter has a locker rental, which is also pretty high. And as an overall percentage of the first quarter and the second quarter because of the fact that the second quarter did not have a locker rental, you would see a little flat, although there is growth in some of the areas such as foreign exchange and so on. Last but not the least is on the treas
Q
Sir, you mentioned about having sales culture in the banks, which was a missing piece earlier. So how have you changed your incentive structure of
Srikrishnan H.
branches and employees versus what used to be the practice earlier to drive this vision? So what we have done is that we are rolling out a variable pay plan for the entire set of sales teams. This includes both the in-house sales offices as well as for the feet on street. And this is based on certain weightages that are given for different products that they acquire. And over a period of time, which is basically on a monthly basis and whatever retention that we need to do, because we also do not want any gaming to happen here where they bring the accounts and then we pay the commission and wit
Q
So I just wanted to understand that what are the changes we are making on the underwriting side given that the bank has in the past been plagued with bad asset quality? So what are the deficiencies that given your past experience at HDFC Bank, you're observing at Karnataka Bank, what changes are we making to improve upon that? And in the future, whenever the cycle turns, we are better positioned.
Srikrishnan H.
I want to just correct your statement a little bit in saying that we have had some problems on the quality of the assets. I do not think so, because it has been pretty healthy, I should say, in the past. But then there are there's always scope for improvement. The second part is that, yes, as we kind of embark into new avenues for growth, which are particularly related to digital as well as client acquisition on the consumer side. So far, the bank has 95% of the loan book has been collateral- based. So that will be a move that will happen as we go forward, which will be cash flow-based and a l
Q
So firstly, I would just like to understand in terms margins trajectory. So like we are just trend this down for this quarter and the cost of deposits has been I think I would say, benign as compared to the competitors what they have been reporting. But this also seems to be on the back of lower deposit growth.
Srikrishnan H.
I think we have guided for roughly one trillion of deposits by FY '24. So are we on track to achieve that? And if yes, then how would the margin behave from here on for the remaining second half? And also, sir, on the deposit repricing, so are we done with the deposit repricing or we are yet to see some more pressure on the existing deposits? So as far as the deposit acquisition is concerned, I'm making sure that all of whatever that we are growing is within a particular affordable annualized rate. Now that is something which we are consciously looking at. And actually speaking, 75% of our FDs
Q
First of all, congratulations on the new initiatives and stable set of earnings. I just wanted to understand the other income, you said is lower for two reasons. One is the treasury impact and the second is lower fees that, they are much higher in Q1. Can you just quantify this, how much is the treasury impact? So I'll take this. So first is we collect all our locker rental in quarter one. so that was a significantly large around INR 41.31 crores of locker rentals. So that was collected in quarter one. And the treasury income difference is around to the extent between both quarters of INR59 cr
Yogesh Bhatia
Correct. Correct. Yes. Okay. I think that is the reason why that has led to a lower profitability. But if you adjust for that, then I think the numbers are very healthy. The next question is from the line of Kirtan Desai, who is an individual investor. My first question is, sir, earlier, we used to provide the provisional figures after the quarter ending, which we have stopped now. Can you just let us know the reason for the same? Sir, this is actually a market practice, some do, some don't do. We were wanting to kind of not get into provisional number and also in order to make sure that there
Q
No, large corporate advances, really speaking, we have not grown as much as what you are saying. The reason being that overall, our composition of the book still remains even at this enhanced advance number of INR65,422 crores is at 49%, which is still retail. So I do not think that we have grown that substantially in any large corporate exposure. That is one. Secondly, your question related to CASA ratio and large corporate advances, these are two independent things. And our CASA ratio is essentially a percentage of the overall deposits, which are lying in the form of current and savings acco
Yaswanth Thippeswamy
Okay. And the second question that I have is with respect to the sales team that you were talking about. So is that the sales team is very towards MSME or corporate or retail, which would be the area that the sales team is going to focus? So it is definitely not corporate. So it is predominantly retail and agri. MSME also forms a portion of that, not much, because MSME sales is to be done more from a banking perspective, understanding the business and which can be done better by our own relationship and account management teams. So our branches are well equipped to handle the MSMEs part and le
Q
I wanted to know what will be the credit cost going ahead? And what will be a sustainable level of other income going ahead?
Srikrishnan H.
So credit costs from an overall projection, I think that will be hovering the same region of 0.5%. So that is not going to change much. And we believe that even on the ANN growth basis, it will not change. That was your first question. Sorry, what was the second question? Other income plan. See, what we have done is that as a bank, if you look at the opportunity in the market, every account where we lend money, we need to also have some product income associated with that. This could be anything which is related to cash flows or foreign exchange or non-funded commission for a couple of exposur
Q
Yes. So in your opening remarks, you mentioned about a couple of co-lending partnerships. So I wanted to explore that a little bit. So what areas of loans are you considering under these partnerships? What kind of vision that you have for co-lending in terms of AUM that you want to target? And who are the partners you're working with? So firstly, I'll answer the question on the vision. Clearly, we have stated in our last quarter strategy, I mean, investor presentation that one of the vectors for growth will be through partnerships. In this regard, we have consolidated our tech, and digital res
Nirvana Laha
Okay. But aren't like operating costs is going to be lower for you because the origination is supposed to be done by the MSME partners towards that extent or operating costs are supposed to be lower, right? So if your lending rates are the same, shouldn't you... I commented on the specifically on gold loans. On micro SMEs, there will be a different strategy. The pricing will be the product category itself will be unique. And the pricing will be different because the loss ratios could be a little different in those product categories. These are largely unsecured. So different strategies for mic
Q
Sir, you just explained regarding the CASA ratio, but last 3, 4 years, it is remaining stagnant around 32%. Will there be any initiative to improve this to 35% or 40%? The CASA ratio at 32% for a bank, which is growing, and whether the total deposit size of INR 60,000 crores become INR80,000 crores or now it has become INR 89,531.73 crores. That means that the ratio has been maintained, which is actually quite healthy. So that is one. Secondly, there are a couple of initiatives that we have taken on the government collection which you are very pretty aware that GST enablement of transactions a
Ram
Okay. So one more question. In the advances, about 48.9% is of retail advance. Is it fully secured? And what is the proportion of the secured and unsecured, can you please enlighten on that, sir? On the retail advances almost, as I said, 95% are secured whether this is housing or asset-based financing like vehicles and so on. The unsecured portion that we have is actually very, very insignificant. One final question. As to the geographical thing, the top 5 states you've given, Karnataka has 577 branches and followed by Maharashtra, Tamil Nadu, Andhra Pradesh, Telangana. Is there any efforts in
Q
So I would like to thank the investor community for reposing confidence as far as the bank is concerned, the institutional investors as well as the retail investors who have always been standing by our side. And based on the last couple of months, that I've been here, we've been doing the around meeting up with all kinds of investor types in various locations. So we believe that we are a very strong story with credentials, which are unparalleled, because this is the 100th year of the institution, and we are celebrating our centenary. Out of the 99 years that we have been existing, all the 99 y
Management
Speaking time
Srikrishnan H.
33
Moderator
12
Prabal
4
Sekhar Rao
4
Nirvana Laha
4
Ram
3
Sarvesh Gupta
2
Yaswanth Thippeswamy
2
Sushil Choksey
1
Darshan Deora
1
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Opening remarks
Srikrishnan H.
DIRECTOR AND CHIEF EXECUTIVE OFFICER – KARNATAKA BANK LIMITED MR. SEKHAR RAO – EXECUTIVE DIRECTOR – KARNATAKA BANK LIMITED Ladies and gentlemen, good day, and welcome to the Q2 FY 2024 Earnings Conference Call hosted by Karnataka Bank. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need any assistance during the conference call, please signal an operator by pressing star and then zero on your touch tone phone. Please note that this conference is being recorded. I now handover the conference to Mr. Srikrishnan H, MD and CEO of the Karnataka Bank. Thank you, and over to you, sir. Thank you, Rayo, and good evening, everyone. A warm welcome to our Q2 H1 FY '24 Earnings Call. It has been an excellent quarter from our perspective. The following is a quick update. As all of you are aware, first and foremost, we have been able to raise capital, although it is not reflected
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