Karur Vysya Bank Limited — Q3 FY25 earnings call

Call held 20 Jan 2025

Management summary

Karur Vysya Bank delivered a strong Q3 FY25 performance characterized by robust credit growth in the RAM segment and exceptional asset quality. While the bank faces industry-wide challenges in CASA retention and rising deposit costs, it successfully maintained NIMs above 4% through yield optimization and shedding low-yield corporate exposures. Management remains confident in sustaining an ROA above 1.65% despite expected margin compression in the upcoming quarter.

Highlights

  • Total business reached ₹181,993 crores, registering a 3% sequential growth.

  • Advances grew 14% YoY to ₹82,838 crores, driven by a 20% YoY growth in the RAM segment.

  • Net Interest Margin (NIM) remained healthy at 4.03% for the quarter and 4.09% for 9M FY25.

  • Asset quality improved significantly with Gross NPA falling to 0.83% and Net NPA to 0.2%.

  • Return on Assets (ROA) stood at 1.74% for the quarter, exceeding the management guidance of 1.65%.

  • Recoveries from technically written-off (TWO) accounts were robust at ₹175 crores during the quarter.

  • Cost-to-income ratio was maintained at 47.27%, well within the target of 50%.

  • Capital adequacy remains strong with CRAR (Basel III) at 15.91%.

Key financials

  1. NIM 4% -1.5%QoQ
  2. ROA 1.7%
  3. GNPA 0.83% -17%QoQ
  4. NNPA 0.2%
  5. Credit Growth 14% +14%YoY
  6. Cost-to-Income 47.3%

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)
    20% Growth YoY4% Growth QoQ
  • Corporate
    -2% Growth QoQ0 Shedding low-yield Strategy
  • Jewel Loans
    5% Agri Jewel Growth QoQ

Guidance & targets

Revenue

  • Credit Growth Revenue · FY25 · High confidence 14% plus
    We continue to focus on inclusive growth and our guidance of 14% growth during the year will hold good.

    — B. Ramesh Babu, MD and CEO

Margin

  • NIM Margin · Q4 FY25 · Medium confidence 3.85%

    Previously above 4% → 3.85%

    Considering all these factors and taking into any policy rate changes, we expect that NIM will be around 3.85% in the next quarter.

    — B. Ramesh Babu, MD and CEO

Profitability

  • ROA Profitability · FY25 · High confidence above 1.65%
    We had guided that our effort would be to ensure ROA is above 1.65% levels and we are confident to maintain the same going forward also.

    — B. Ramesh Babu, MD and CEO

Other

  • Credit Cost Other · Q4 FY25 · High confidence 0.75%
    The guidance we had given at the beginning of the year on the following parameters would hold good for the fourth quarter also... credit cost 0.75%.

    — B. Ramesh Babu, MD and CEO

Risks & concerns

  • CASA Book Depletion

    medium

    CASA book saw a sequential reduction of 0.23% due to outflows to mutual funds and real estate.

    Management acknowledged

  • NIM Compression

    medium

    Management expects NIM to drop from 4.03% to ~3.85% in Q4 due to rising deposit costs (+10bps) and plateauing yields.

    Both acknowledged

  • Unsecured Lending Exposure

    low

    Management is taking a 'very cautious approach' with unsecured portfolio at only 2.42% of total advances.

    Analyst downplayed

Areas of evasion (1)

  • Specific LTV details for the LAP book were not explicitly provided in the response.

Q&A highlights

2 direct
Technical Write-Off (TWO) Recovery Potential Direct
I feel that with the traction what we have created, next four quarters... INR400 crores what you are saying. So I think definitely we can think of, it can go ahead.

Management confirmed a target of ₹400-500cr in recoveries over the next year, which will significantly support profitability and offset NIM compression.

Asked by Jai Mundra, ICICI Securities

Gold Loan Regulatory Compliance Direct
So coming to the rollover of these things, even before RBI started giving these guidelines itself, we have stopped long back the rollover. So someone will have to close the loan and all, they had to take it.

Management clarified they are already in compliance with tightened RBI norms on gold loans, mitigating regulatory risk that has impacted peers.

Asked by Rikin Shah, IIFL Securities

CASA Retention Challenges Partial
The problem is mainly coming in respect of the retention part. So because the existing money what all is there, either it may be going to mutual fund or real estate... the outflow is much more that is overall we are struggling.

Highlights the systemic pressure on low-cost deposits as customers shift funds to higher-yielding investment avenues, forcing the bank to rely more on term deposits.

Asked by Jai Mundra, ICICI Securities

2 min read 5 chapters

Detailed narrative

Strategic Shift to RAM Segment Pays Off

The bank's focus on the RAM (Retail, Agri, MSME) segment has yielded a 20% YoY growth, now acting as the primary engine for credit expansion. Retail banking specifically grew by 20% YoY, driven by mortgages and jewel loans. Management is aggressively merging branch and open-market channels (NEO initiative) to source retail business, already implemented in 244 branches.

Asset Quality Reaches Historic Highs

Gross NPA has declined to a remarkable 0.83%, with Net NPA at 0.2%. Gross slippages were tightly controlled at ₹139 crores (0.17% for the quarter). The bank continues to hold significant prudential provisions (₹25 crores added this quarter) and has a restructured book of only 0.7% of total advances, which management describes as well-secured and unlikely to cause future stress.

NIM Management Amidst Liability Pressure

While NIM was maintained at 4.03% in Q3, management signaled a compression to 3.85% for Q4. This is driven by a 10 bps expected increase in the cost of deposits and the shedding of low-yielding corporate advances. To counter this, the bank is focusing on higher-yielding granular secured advances in the RAM sector and prudent treasury operations.

Recovery Engine as a Profitability Buffer

The bank has successfully recovered ₹175 crores from technically written-off accounts this quarter. With a total TWO pool of approximately ₹4,700-4,800 crores, management has strengthened its legal and disposal teams. They expect to sustain a recovery rate of ₹400-500 crores over the next four quarters, which will provide a significant cushion to the bottom line as margins normalize.

Operational Expansion and Cost Control

KVB added 25 branches this quarter and plans to open 22 more in Q4, targeting 80 for the full year. Despite front-loading costs for a new sales acquisition vertical (1,200-1,300 people) and branch expansion, the bank remains committed to keeping the cost-to-income ratio below 50%. Management views these as necessary investments for long-term deposit and fee income growth.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Financial Services earnings calls