Karur Vysya Bank Limited — Q1 FY26 earnings call

Call held 24 Jul 2025

Management summary

Karur Vysya Bank delivered a strong start to FY26 by front-loading credit growth and maintaining robust asset quality despite industry-wide margin pressures. While NIM compressed by 19 bps to 3.86%, management successfully navigated a 75 bps rate reduction environment. The bank continues to pivot toward RAM segments and high-yield jewel loans while maintaining a cautious stance on unsecured lending and corporate exposure.

Highlights

  • Net Profit reached ₹521 crores, representing a 14% YoY increase and 2% QoQ growth.

  • Total business crossed ₹1,96,024 crores, up 15% YoY, with advances growing 6% QoQ to ₹89,374 crores.

  • Net Interest Margin (NIM) stood at 3.86%, a compression of 19 bps from the previous quarter due to yield declines.

  • Gross NPA improved to 0.66% from 0.74% sequentially; Net NPA remained steady at 0.19%.

  • RAM (Retail, Agri, MSME) verticals now account for 86% of total advances, growing 20% YoY.

  • The Board proposed a 1:5 bonus issue (1 share for every 5 shares held).

  • Cost-to-income ratio effectively controlled at 47.22%, well within the sub-50% target.

  • CASA balances grew by 5% QoQ, supported by a new CASA acquisition channel.

Concerns

  • NIM Compression

Key financials

  1. Net Profit ₹521 Cr +14%YoY
  2. NIM 3.9% -4.7%QoQ
  3. Gross NPA 0.66% -10.8%QoQ
  4. Net NPA 0.19% 0%QoQ
  5. Advances ₹89,374 Cr +15%YoY
  6. ROA 1.7%

What they filed

Q1 FY27: revenue up 18.7%, net profit up 45.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,387 2,489 2,516 2,569 2,808 +18%2,794 +12%2,904 +15%3,049 +19%
Net profit474 496 513 521 574 +21%690 +39%725 +41%756 +45%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • RAM (Retail, Agri, MSME)
    86% Portfolio Share6% QoQ Growth20% YoY Growth
  • Retail
    8% QoQ Growth23% Jewel Loan Growth
  • Agriculture
    4% QoQ Growth91% Agri Jewel Share

Guidance & targets

Margin

  • Full Year NIM Margin · FY26 · High confidence 3.7% to 3.75%
    With the current visibility... we endeavor to maintain our full-year guidance for net margin at 3.7-3.75 for FY 2025-26.

    — Mr. B. Ramesh Babu, MD & CEO

Profitability

  • Full Year ROA Profitability · FY26 · Medium confidence 1.55% to 1.65%
    The ROA for this quarter stands at 1.73%, slightly better than the guided range of 1.55% to 1.65%.

    — Mr. B. Ramesh Babu, MD & CEO

Market Share

  • Credit Growth Market Share · FY26 · High confidence Above 2% over industry growth
    To sum up, our guidance for the credit growth of above 2% over the industry growth continues for the rest of the quarters.

    — Mr. B. Ramesh Babu, MD & CEO

  • GNPA Market Share · FY26 · High confidence < 1.5%
    Our GNPA is expected to be less than 1.5% and Net NPA less than 1% and slippages to be less than 1%.

    — Mr. B. Ramesh Babu, MD & CEO

Other

  • Recoveries from written off accounts Other · FY26 · Medium confidence ₹600 crores
    overall during the year the recoveries would be around Rs. 600 crores which we feel will be able to achieve.

    — Mr. B. Ramesh Babu, MD & CEO

Risks & concerns

  • NIM Compression

    high

    Yields on advances declined 21 bps this quarter with another 10 bps drop expected in Q2 due to repricing lags.

    Both acknowledged

  • MFI Segment Stress

    medium

    MFI book of ₹270 crores is showing some NPA flow; management is cautious and has commenced CGFMU coverage.

    Management acknowledged

  • Corporate Book Competition

    low

    Management views corporate lending as 'tactical' and will only grow if yields are attractive (9.5%+), otherwise preferring RAM segments.

    Management deflected

Areas of evasion (1)

  • Slightly vague on the exact timing of when deposit cost reductions will fully offset yield declines, citing 'permutations and combinations'.

Q&A highlights

3 direct
Credit Cost Sustainability Direct
0.54 is transitory for this quarter, but it is not for the whole year... we have guided credit cost will be around 1%.

Clarifies that the current exceptionally low credit cost is likely to normalize toward 1% as the year progresses.

Asked by Akshat Agarwal, SMIFS

EBLR Repricing Lag Direct
37% is yet to be repriced... term loan book only partially reset. It has to be reset now in the next two months.

Explains why NIM compression occurred despite EBLR links, highlighting the timing difference between working capital and term loan resets.

Asked by Jay, ICICI Securities

Yield on Advances (YOA) Outlook Direct
I talked about the YOA, yield on advances will be down by 10 basis points. So, margin we need to see how it works that way because how cost of deposits will support me I need to see.

Signals further pressure on yields in Q2, making NIM sustainability dependent on the bank's ability to lower deposit costs.

Asked by MB Mahesh, Kotak Securities

2 min read 5 chapters

Detailed narrative

Front-Loaded Growth Strategy Pays Off

Karur Vysya Bank successfully front-loaded its growth in the first quarter, with advances rising 6% QoQ to ₹89,374 crores. This strategic move, consistent with previous years, aims to support consistent interest income generation throughout the fiscal year. The RAM segments (Retail, Agri, MSME) were the primary drivers, growing 6% QoQ and now constituting 86% of the total portfolio.

Navigating NIM Compression and Yield Pressures

The bank faced a 19 bps compression in NIM, which landed at 3.86% for the quarter. This was driven by a 21 bps decline in yield-on-advances as 53% of the loan book is EBLR-linked. Management expects another 10 bps reduction in yields for Q2 but maintains a full-year NIM guidance of 3.7% to 3.75%, banking on deposit repricing benefits expected from Q3 onwards.

Asset Quality Remains a Core Strength

Asset quality metrics continue to be best-in-class, with Gross NPA declining to 0.66% and Net NPA holding steady at 0.19%. While gross slippages were ₹189 crores (0.84% annualized), management remains confident in keeping the slippage ratio below 1% for the full year. The bank is maintaining a cautious approach toward unsecured personal loans and the MFI segment to protect this trajectory.

Liability Franchise and CASA Acquisition

Total deposits increased by 4% QoQ to ₹1,06,650 crores, with CASA balances growing by 5%. The bank's new CASA acquisition team contributed 56% of the NTB (New to Bank) book growth during the quarter. Management is focusing on 'Gen-Z' and start-ups with personalized products to further strengthen the low-cost deposit base.

Operational Efficiency and Branch Expansion

The cost-to-income ratio was well-managed at 47.22%, aided by a sequential decrease in operating expenses of ₹42 crores. The bank plans to open approximately 40 'lite' branches this year, a model utilizing 3-4 people focused primarily on liability accretion. This lean expansion strategy is designed to keep the cost-to-income ratio below the 50% threshold.

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