Event Participants
Executives
2
Biji S. S., Raghavendra Srinivas Bhat
Analysts
9
Chirag Singhal, Jyoti Qatari, Manoj Yedana Puri, Parth Guttika, Pranay Telia, Surbhi Sibal, Sushil Choksi, Vinay Nadkarni, Yashwant Tipeswamy
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Aggregate Business | ₹1,97,007 crore | Highest ever; +3% QoQ, +11% YoY |
| Deposits | ₹1,10,396 crore | +1% QoQ, +7% YoY; bulk deposits at 4.7% of total (vs 5.4% YoY) |
| CASA Ratio | 32.42% | -119 bps QoQ vs 33.61%, +158 bps YoY vs 30.84% |
| Retail Term Deposits (<₹3 crore) | ₹69,410 crore | +3% QoQ, +6% YoY; granularization of deposit mix ongoing |
| Gross Advances | ₹86,610 crore | +4% QoQ, +17% YoY; driven by retail expansion and selective corporate growth |
| RAM Book | ₹53,172 crore | +4% QoQ, +12% YoY; MSME, housing, gold, and vehicle loans contributed ~₹1,980 crore growth |
| Mid-Corporate Advances | ₹16,636 crore | +5% QoQ, +15% YoY; recovering from earlier de-growth |
| CD Ratio | 78.45% | +184 bps QoQ vs 76.61%, +652 bps YoY vs 71.93%; focus on improving lending deployment |
| NII | ₹938.29 crore | +11% QoQ, +24% YoY; margin expansion and loan mix improvement |
| NIM | 3.20% | +13 bps QoQ vs 3.07%, +38 bps YoY vs 2.82% |
| Yield on Advances | 8.68% | -10 bps QoQ vs 8.78%; expected to strengthen with accelerating retail mix |
| Cost of Funds | 5.16% | -22 bps QoQ vs 5.38%; driven by bulk deposit reduction and CASA focus |
| GNPA | 2.58% | -20 bps QoQ vs 2.78%, -88 bps YoY vs 3.46% |
| NNPA | 0.87% | -11 bps QoQ vs 0.98%, -57 bps YoY vs 1.44% |
| PCR (excl. TWO) | 67.03% | +164 bps QoQ vs 65.39%; accelerated provisioning policy |
| PCR (incl. TWO) | 84.70% | +116 bps QoQ vs 83.54% |
| Slippage | 0.14% | -6 bps QoQ vs 0.20%; improved monitoring and regional collection centres |
| Credit Cost | 0.03% | -7 bps QoQ vs 0.10%; lowest recent level |
| Standard Restructured Advances | ₹763 crore | -5% QoQ vs ₹806 crore, -14% YoY vs ₹888 crore |
| Cost-to-Income | 55.14% | +467 bps QoQ vs 50.47%, -291 bps YoY vs 58.05% |
| ROA | 1.29% | +2 bps QoQ vs 1.27%, +32 bps YoY vs 0.97% |
| ROE | 12.48% | -21 bps QoQ vs 12.69%, +290 bps YoY vs 9.58% |
| CRAR | 21.10% | +103 bps QoQ vs 20.07%; eligible profits considered per RBI guidelines |
| LCR | 169% | +370 bps QoQ vs 165.30%; well above 100% statutory requirement |
| PAT | ₹418.95 crore | +3% QoQ, +43% YoY; fifth consecutive quarter of improvement |
Geographic & Segment Commentary
RAM (Retail, Agri, MSME): Grew to ₹53,172 crore with 4% QoQ and 12% YoY growth. Within RAM, gold loans grew 35% YoY (9.3% QoQ), MSME grew 4.9% QoQ/7.6% YoY, and other retail grew 2.5% QoQ/7.7% YoY. Management acknowledged retail growth requires volume building and has deployed retail hubs across 15 centres to drive acceleration.
Mid-Corporate: Book grew to ₹16,636 crore (+5% QoQ, +15% YoY), recovering from earlier negative quarters. Management committed to growing this segment alongside retail, with deliberate expansion into quality, higher-yielding exposures.
Large Corporate / Other Segments: The "other" segment grew ~25% YoY (faster than RAM), but management clarified this is driven by short-term, yield-accretive lending to balance growth, with a stated objective of reducing this share percentage-wise, offset by retail and mid-corporate. IBPC book reduced to ₹1,375 crore (from ₹1,618 crore in March), with ₹243 crore replaced by higher-yielding loans in Q1.
Company-Specific & Strategic Commentary
Branch Expansion: Planned 31-32 new branches in FY27; one already opened, 12-13 more targeted before end of H1 — first meaningful branch network expansion in years.
Product Launches: Three MSME products launched (GST OD, LAP for MSME, Drop-Line OD); two more in pipeline (drop-line OD features, end-to-end MSME digitization). Retail products in development include surrogate-based housing/mortgage lending, digital vehicle loan execution, 90% project-cost funding for ready-built/under-construction units, and gold loan digitization.
Liability Innovation: Flexi deposits for HNI customers launched (auto-sweep to deposit accounts); virtual account facility under development. Focus on replacing high-cost bulk deposits with granular retail deposits at card rates.
Digital & Technology: MoU with Pine Labs for POS facility (April 21, 2026); new treasury application, new NPA solution, digital FD, secured credit cards, and voice bots for sales/collections in progress. Exploring AI tools for internal process efficiencies.
Agri Strategy: Partnerships with self-help groups for agricultural lending expansion; exploring electronic negotiable warehouse receipts with agricultural clusters for post-harvest financing.
Leadership: Mrs. Biji S. S. assumed charge as Executive Director effective July 15, 2026, bringing 30+ years of banking experience.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Business Growth | ~15% overall growth in FY27 | ~10-15% liability growth, 15-20% advances growth; management committed to "low promise, higher delivery" |
| ROA | 1.35%-1.40% target | Current run-rate 1.29%; management aiming for continued improvement |
| NIM | Continued improvement | Driven by RAM mix shift, IBPC replacement, bulk deposit reduction, and recovery momentum |
| CD Ratio | Continued improvement from 78.45% | Priority to increase lending given strong capital position |
| Branch Network | 31-32 new branches in FY27 | 12-13 branches before H1 end; first major expansion in years |
| Yield on Advances | Expected to improve | 8.68% current; accelerating retail growth and stabilizing corporate book at better yields |
Risks & Constraints
| Risk | Context |
|---|---|
| Macro Headwinds | Prolonged West Asia conflict escalating growth and inflation risks; supply disruptions and elevated commodity prices; potentially deficient southwest monsoon poses risks to agricultural demand. MPC maintaining neutral stance awaiting inflation clarity. |
| SMA-2 Build-up | SMA-2 increased to ₹753 crore (from ₹635 crore in March), with total SMA at ₹3,435 crore. Management attributed to one-off June holiday-related single-day defaults, stated it is "under control" and no additional provisioning required. |
| ECL Mandate (April 2027) | Expected ~1% provisioning impact; management states CRAR comfort (21.10%) and dedicated team working on implementation; no significant disruption anticipated. |
| Employee Cost Volatility | Q1 employee cost increased due to yield movement and gratuity/retirement provisions; management confirmed normalized levels are under control, but auditor-driven quarter-to-quarter variations may persist. |
| Leadership Continuity | CEO tenure extension status unresolved; management deferred to board process and stock exchange filings, leaving investor concerns partially unaddressed. |
Q&A Highlights
Growth Strategy & Branch Expansion
- Question: What is being done differently to drive growth given limited branch expansion and focus on retail/MSME? What is the sanctioned/unsanctioned pipeline? (Sushil Choksi, Indus Equity Advisors)
- Answer: 31-32 new branches planned in FY27 with 12-13 before H1 end. Growth guidance of ~15% business, 10-15% liabilities, 15-20% advances. RAM focus areas include gold, housing, car, education, personal, two-wheeler, retail LRD, and mortgage loans. "Low promise, higher delivery" remains the objective. (Raghavendra Srinivas Bhat)
Q1 as Trough Quarter
- Question: Can we safely say this is the worst quarter for FY27? (Pranay Telia, Panchatantra Advisors)
- Answer: April was historically negative for 18 years, but this year April itself was positive. Management is confident of good growth and "will try to make it better and best." CD ratio priority given comfortable CRAR of 21.10%. (Raghavendra Srinivas Bhat)
SMA Build-up & Provisioning Risk
- Question: SMA-2 increased from ₹635 crore to ₹753 crore in a quarter with lowest provisions — does this indicate higher provisions ahead? (Vinay Nadkarni, Hathway Investments)
- Answer: SMA-2 increase attributed to June 30 holiday-related single-day defaults. Focus is on preventing slippage across SMA-0, SMA-1, and SMA-2. No additional provisioning foreseen from slippage. On ECL mandate (April 2027), dedicated team working; CRAR comfort and stress under control; "very well ready" for implementation. (Raghavendra Srinivas Bhat)
Employee Cost Normalization
- Question: What led to the increase in employee cost despite headcount reduction, and what is normalized cost? (Surbhi Sibal, Infinite Financial Services)
- Answer: Increase due to yield movement and provisions for gratuity/retirement benefits; not utilized for profit declaration. Employee cost is "very well under control" and expected to remain in the same range going forward. (Raghavendra Srinivas Bhat)
CEO Tenure, ROA Target & Margins
- Question: Status on CEO tenure extension; ROA/ROE targets for FY27 and FY28? (Jyoti Qatari, Ambit Wealth)
- Answer: Tenure process is guided by best practices and updated via stock exchange filings; board is capable of decisions. ROA target is 1.35%-1.40% (current 1.29%). Margins expected to continue improving given onboarding quality and recovery momentum. (Raghavendra Srinivas Bhat)
Corporate Book Dynamics
- Question: Large corporate growth has been strong — are these short-term T-bill-linked loans? When will mid-corporate growth pick up? (Parth Guttika, 360 ONE Capital)
- Answer: Focus is on reducing bulk/corporate exposure, offset by retail and mid-corporate growth. Large corporate grew to ₹21,352 crore (from ₹20,646 crore); mid-corporate to ₹16,636 crore (from ₹15,721 crore); retail to ₹48,622 crore (from ₹46,973 crore). Retail hubs across 15 centres driving volume. (Raghavendra Srinivas Bhat)
RAM vs "Other" Segment Growth Gap
- Question: Why is "other" segment growing at ~25% vs RAM at ~12%, given RAM is strategic priority? (Manoj Yedana Puri, Infinite Financial Services)
- Answer: Corporate/large lending is "easy banking" but yield-conscious; RAM growth requires volume building with improved turnaround times. Gold loans grew 35% YoY; retail hubs now operational across 15 centres to accelerate RAM growth. (Raghavendra Srinivas Bhat)
ROA Sustainability & Employee Cost
- Question: Is 1.35%-1.40% ROA an exit run-rate or full-year target? What annual employee cost to factor? (Chirag Singhal, First Water Fund)
- Answer: Continuous improvement is the effort; employee cost is under control with productivity focus — no annual guidance change. (Raghavendra Srinivas Bhat)
FCNR & Gold Loan Pipeline
- Question: What is the FCNR(B) and gold loan pipeline? (Sushil Choksi, Indus Equity Advisors)
- Answer: ~₹60 crore fresh FCNR deposits garnered in Q1. Gold loan was constrained last year by regulatory/board approval delays; this year is a focused growth area with renewed momentum. (Raghavendra Srinivas Bhat)
Key Takeaway
Karnataka Bank delivered its strongest quarter on record with aggregate business reaching ₹1,97,007 crore (+11% YoY), PAT of ₹418.95 crore (+43% YoY), and ROA of 1.29% — the second consecutive quarter above 1%. NIM expanded 38 bps YoY to 3.20%, driven by a 22 bps QoQ reduction in cost of funds (5.16%) as the bank replaced high-cost bulk deposits (IBPC down to ₹1,375 crore) with granular retail deposits and RAM-centric lending. Asset quality improved decisively — GNPA at 2.58% (-88 bps YoY), NNPA at 0.87% (-57 bps YoY), with PCR (incl. TWO) at 84.70%. Management guided ~15% business growth, 15-20% advances growth, and an ROA target of 1.35-1.40%, supported by 31-32 new branches, expanded MSME product suite, Pine Labs POS partnership, and retail hubs across 15 centres. Key watch-points include SMA-2 build-up (₹753 crore), ECL implementation from April 2027, elevated cost-to-income at 55.14%, and unresolved CEO tenure continuity — though management expressed confidence in sustained improvement across margins, recoveries, and profitability in coming quarters.