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    Karur Vysya Bank Limited

    KARURVYSYAGood
    Financial Services·17 Oct 2024
    Management Summary

    Karur Vysya Bank delivered a strong Q2 FY25 performance characterized by superior asset quality and industry-leading profitability metrics. The bank is intentionally shedding low-yield corporate exposures to protect margins while aggressively growing its granular RAM portfolio. Despite rising deposit costs, management maintained NIM above 4% and reiterated its confidence in sustaining an RoA above 1.65% through prudent credit selection and operational efficiency.

    Highlights

    8

    • Total business reached ₹1,76,138 crores, registering a sequential growth of 4%

    • Net Interest Margin (NIM) remained strong at 4.11% for the quarter and 4.12% for H1 FY25

    • Return on Assets (RoA) achieved was 1.72%, exceeding the management guidance of 1.65%

    • Gross NPA improved to 1.1% and Net NPA stood at 0.28% as of September 30, 2024

    • RAM (Retail, Agri, MSME) verticals saw 5% QoQ growth, while the corporate book intentionally degrew by 4%

    • Cost of deposits increased by 8 bps sequentially, while yield on advances reduced by 2 bps

    • Recovery from technically written-off accounts was robust at ₹180 crores during the quarter

    • Bank plans to open 100 new branches in FY25, with staff front-loading already underway

    What Changed1

    vs Q3 FY25

    Guidance items4 → 6 (+2)

    Key financials

    Single quarter

    06 metrics
    1. 01NIM4.1%-0.2%QoQ
    2. 02RoA1.7%
    3. 03Gross NPA1.1%
    4. 04Net NPA28.0%
    5. 05Cost-to-Income Ratio46.7%

    Segment breakdown

    RAM Verticals
    5% Loan Growth
    Corporate
    -4% Loan Growth
    Commercial
    6% Loan Growth
    Retail & Agri
    4% Loan Growth
    List

    Guidance & targets

    6
    CategoryTargetPriority
    Margin
    NIM
    4%
    		Medium
    Margin
    Cost of Deposits Increase
    10 bps
    		Medium
    Profitability
    RoA
    above 1.65%
    		High
    Volume
    Annual Loan Growth
    14%
    		High
    Volume
    RAM Portfolio Growth
    18% to 20%
    		High
    Other
    Branch Expansion
    100
    		High

    Risks & concerns

    3
    RiskSeverity

    CASA Growth Lagging

    CASA book grew only 1% sequentially, which management cited as a constraint on reopening the 'tap' for corporate lending. — Management acknowledged

    medium

    Rising Cost of Deposits

    Cost of deposits rose 8 bps this quarter and is expected to rise another 10 bps in Q3, putting pressure on NIM. — Both acknowledged

    medium

    Corporate Book Degrowth

    Analysts questioned the 4% degrowth in corporate; management clarified it is an intentional exit from low-yield accounts that don't meet ROA hurdles. — Analyst downplayed

    low

    Q&A highlights

    3

    “we have front-loaded the staff numbers also for these branches. Once everything is ready, if you do not have the staff, you will be paying the rent, you will be stuck.”

    Explains the 25% growth in 'other opex' as a strategic investment in IT and physical infrastructure rather than a loss of cost control.

    asked by Abhijeet Vara, Axis Mutual Fund

    2 min read5 chapters

    Detailed Narrative

    01

    Asset Quality Remains the North Star

    Karur Vysya Bank continues to demonstrate exceptional control over asset quality, with Gross NPA falling to 1.1% and Net NPA to 0.28%. Gross slippages were well-contained at ₹181 crores (0.23% of the book), while recoveries from written-off accounts nearly matched slippages at ₹180 crores. Management expressed high confidence in keeping the annualized slippage ratio below 1% for the remainder of the year.

    02

    Strategic Pivot in Corporate Lending

    The bank is undergoing a deliberate shift in its corporate portfolio, which degrew by 4% this quarter. Management is exiting low-yielding AAA and AA rated accounts where pricing is 'not conducive' to their 1.65% RoA target. Instead, they are selectively moving toward granular BB-rated exposures where yields are better and risk is manageable, reducing the average ticket size to ₹36 crores.

    03

    Aggressive Physical and Digital Expansion

    Despite industry trends toward pure digital, KVB is doubling down on its physical footprint with a target of 100 new branches in FY25. This expansion, along with IT security hardening, has driven a 25% YoY increase in other operating expenses. Management defended this 'front-loading' of costs as necessary to build a sustainable liability franchise and support their 18-20% RAM growth target.

    04

    Liability Franchise Under Pressure

    The primary challenge remains the liability side, where CASA growth was a muted 1% sequentially. This sluggishness has forced the bank to be conservative on the asset side, choosing to 'wait and watch' rather than bloating the book with high-cost deposits. Management expects a further 10 bps increase in deposit costs in the next quarter but aims to offset this through better-yielding RAM advances.

    05

    Gold Loan Concentration and Compliance

    Gold loans now constitute 26% of the total portfolio, with management indicating a comfort level up to 30%. Despite recent RBI circulars on gold loan compliance, the bank stated it is fully in line with regulations. The portfolio remains healthy with low SMA levels, and the bank is seeing a balanced growth between agri-jewel (up 4%) and retail-jewel (up 7%) segments.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.