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Karnataka Bank Ltd

| Q2 FY 2025-26 Financial Results Conference Call

NEUTRAL SENTIMENT

Report Source

⬤10th Nov 25

Summary : Karnataka Bank reported Q2 FY26 PAT growth, driven by a strategic shift to RAM segments and improved asset quality, despite Q-on-Q degrowth in advances and deposits, and challenges from falling yields and leadership changes.

Management Perspective positive : I am pleased to report that we have made steady progress in executing our strategy. Our mission and vision remain clear and steadfast. We remain confident that FY '26 will be a year of transformation and acceleration. I'm quite confident that this yield or NIM will improve. I'm quite optimistic. I am quite sure that this we want to make it a reality.

Concall Report Analysis & Insights

Business Overview

  1. Q2 FY26 PAT increased 9.1% Q-on-Q to INR319.12 crores.
  2. Gross advances saw a 0.8% Q-on-Q degrowth, standing at INR73,644 crores.
  3. Aggregate deposits marginally degrew 0.4% Q-on-Q to INR1,02,817 crores.
  4. CASA deposits grew 0.15% Q-on-Q, now 31.01% of total deposits.
  5. Gross NPA improved to 3.33% from 3.46% Q-on-Q, Net NPA to 1.35% from 1.44%.

Future Growth Prospects

  1. Focus on Retail, Agri, and MSME (RAM) segments for resilient portfolio growth.
  2. Optimizing funding costs by shifting from bulk to granular retail deposits.
  3. Maintaining asset quality while improving ROA and ROE.
  4. Expect NII improvement in H2 FY26 due to RAM focus and lower cost of funds.
  5. Aiming for CD ratio of 80%, NIM above 3%, ROA above 1%, and cost-to-income 55-56%.

Management Insights

  1. Q2 FY26 marks the MD & CEO's first full quarter, showing steady strategy execution.
  2. Strategic priorities include enhancing RAM growth, optimizing funding costs, and maintaining asset quality.
  3. Digital transformation is accelerating with new products and platforms.
  4. Committed to reducing exposure to low-yielding large corporates and replacing IBPC with higher-yielding loans.
  5. Empowering regional heads with delegated powers to improve loan processing and TAT.

Signs of Skepticism

  1. Analyst questioned the stability of leadership given recent resignations.
  2. Concern raised about the bank's image and lack of investor interest compared to peers.
  3. Analyst noted that the bank's FD return has been better than shareholder return.
  4. Questioned why yields on the book have fallen despite IBPC reduction and retail book shoring up.
  5. Analyst highlighted the cost-to-income ratio increase under previous management.

Risk Factors

  1. Temporary slowdown in aggregate business and advances Q-on-Q.
  2. Repo rate reductions impacted yields on advances, pressuring NIM.
  3. Increase in standard restructured portfolio during the quarter.
  4. Senior leadership resignations noted by an analyst, though management dismisses it as a threat.
  5. Cost-to-income ratio increased to 58.93% Q-on-Q.

Good To Know

  1. Bank's CRAR stood at 20.84% as of September 30, 2025.
  2. Liquidity coverage ratio was 188.16% against a statutory target of 100%.
  3. New product launches include PM Vidyalakshmi, pre-approved personal loans, Green Deposit, and a merchant payment app.
  4. Around INR400 crores gold loan growth in October, with a target of INR1 crore per month per branch.
  5. RBI granted an extension to fill the new CEO position, with a panel of names recommended.

Key Drivers

  1. RAM portfolio focus drives growth.
  2. Improved asset quality metrics.
  3. Digital transformation enhances efficiency.
  4. Reduced cost of funds.

Key Analyst Discussions

Competitive Environment

  1. Analyst noted peer banks in South growing RAM at 16-18%.

Market Trends & Consumer Behavior

  1. Repo rate reduction impacted yields across the industry.
  2. Excess liquidity in the market affects deposit interest rates.

Financial Highlights

  1. Management aims for 80% CD ratio, 3%+ NIM, 1%+ ROA, and 55-56% cost-to-income.
  2. Yield on advances expected to improve to 9% plus in H2 FY26.
  3. Cost of funds reduced due to repo rate cuts and shift from bulk deposits.
  4. Technically written-off book is INR2,700 crores, with INR100 crores recovered in H1.

Product Composition

  1. Focus remains on Retail, Agri, and MSME (RAM) segments.
  2. Gold loan portfolio is a strong growth area, with recent pickup.
  3. Replacing IBPC book with higher-yielding direct loans.

Strategic Considerations

  1. Delegated sanctioning powers to regional heads to improve TAT and growth.
  2. Management is addressing senior leadership resignations with alternative arrangements and internal promotions.
  3. Bank is working on improving its image and investor interest.
  4. No ESOP plan for talent retention has been finalized yet.
Karnataka Bank Ltd (KTKBANK) Concall Report Analysis & Insights | Dhanarthi