Karnataka Bank recorded 22% increase in the net profit to Rs 163.24 crore in the quarter ended June 2018 (Q1FY2019). The net interest income of the bank has increased 10%, while the bank has substantially improved cost-to-income ratio to 45.5% in Q1FY2019 from 51.8% in Q1FY2018. The bank has improved margins as well as asset quality in Q1FY2019 with the sharp decline in fresh slippages and improved collection performance.

Bank has maintained the business growth, while exhibiting further improvement in credit-deposit ratio to 76.1% end June 2018. The bank has expanded branch network with the addition of 7 branches in Q1FY2019.

Asset quality improves: Bank has improved asset quality in the quarter ended June 2018 with the dip in fresh slippages of advances.

• Fresh slippages of advances eased to Rs 270 crore in Q1FY2019 from Rs 1037 crore in the previous quarter. Meanwhile, the recoveries, upgradations and write-off were higher at Rs 349 crore for the quarter.
• Outstanding standard restructured advances of the bank eased to Rs 273 crore (0.57% of advances) at end June 2018 compared to Rs 283 crore (0.60% of advances) at end March 2018.
• Stressed assets (NNPA and restructured advances) declined to 3.50% of advances at end June 2018 from 3.56% at end March 2018 and 5.72% at end June 2017.
• RWA increased 15% to Rs 46030 crore at end of June 2018 from a year earlier.

Business Performance:

Steady business growth: Business of the bank increased at nearly steady pace of 17% yoy to Rs 110456 crore at end June 2018. Deposits increased 12% to Rs 62725 crore, while advances moved up 24% to Rs 47731 crore at end June 2018. Credit-deposit ratio rose to 76.1% at end June 2018 from 75.2% at end March 2018.

CASA ratio eases: CASA deposits increased 5% to Rs 17158 crore. CASA ratio declined to 27.4% at end June 2018, compared with 28.0% at end March 2018 and 28.9% at end June 2017. Meanwhile, the bulk deposits with the bank has jumped 13-times to Rs 2255 crore at end June 2018 over June 2017.

Corporate loans driving advances growth: Advances increased 24% at Rs 47731 crore at end June 2018. The corporate advance jumped 41% to Rs 26252 crore, while the retail advance rose 8% to Rs 21479 crore at end June 2018. Retail advances share declined to 45.0% at end June 2018 from 51.6% at end June 2017.

Break-up of advances shows housing at 12.1% of the advances, agriculture - 12.1%, SME - 20.0%, medium enterprises - 3.2%, large enterprises - 12.4%, other personal loans - 5.5%, infrastructure - 7.9%, NBFCs - 14.6%, CRE - 6.3% and other - 6.0% at end June 2018.

Priority sector loans (PSL) of the bank stood at 51.4% of advances at end June 2018, while consistently exceeding the regulatory PSL target of 40%, while increased from 46.8% at end June 2017.

Investment book of the bank dipped 14% to Rs 15861 crore at end June 2018. SLR investment stood at Rs 13437 crore. Share of AFS book eased to 21.2% at end June 2018 from 21.5% a quarter ago and 41.9% a year ago.

The modified duration of AFS book declined to 2.37 years, while that of overall investment book was nearly flat at 4.77 years at end June 2018.

Network expansion: Bank has opened 7 branches in the quarter ended June 2018. Bank has the network of 807 branches and 1354 ATMs at end June 2018.

Book value stood at Rs 182.48 per share at end June 2018. Adjusted Book value (excluding NNPA and 10% of restructured assets) was at Rs 132.12 per share at end June 2018.

Quarterly Performance

NII up, as NIMs improve: For the quarter ended June 2018, the bank has posted 6% growth in interest income to Rs 1407.64 crore, while interest expenses rose 4% to Rs 939.06 crore. NII increased 10% to Rs 468.58 crore, as net interest margin (NIM) improved to 3.00% in Q1FY2019 from 2.97% in Q1FY2018.

Fee income jumps, trading income dips: The non-interest income of the bank fell 4% to Rs 208.80 crore in Q1FY2019. The core fee income of the bank increased 43% to Rs 203 crore, while trading income dipped 92% to Rs 6 crore in Q1FY2019 over Q1FY2018.

Net Total income rose 6% to Rs 677.38 crore in quarter under review.

Expense ratio dips: Operating expenses declined 7% to Rs 308.50 crore. The employee cost dipped 20% to Rs 110.50 crore in Q1FY2019, while the other operating expenses rose 2% to Rs 198 crore. Expense ratio dipped to 45.5% in Q1FY2019 compared with 51.7% in Q1FY2018.

The operating profit moved up 19% to Rs 368.88 crore in the quarter ended June 2018.

Provisions up: The provisions and contingencies increased to Rs 222.06 crore in Q1FY2019 as against Rs 198.88 crore in the corresponding quarter last year. The Profit before tax (PBT) jumped 32% to Rs 146.82 crore in Q1FY2019 over Q1FY2018.

Tax provision write-back declines: The bank has written back tax provisions of Rs 16.42 crore in Q1FY2019 against write-back of Rs 23.03 crore in Q1FY2018.

Net profit moved up 22% to Rs 163.24 crore in Q1FY2019.

Annual Financial Performance:

For the year ended March 2018 (FY2018), the bank has posted 28% decline in net profit to Rs 325.61 crore. The net interest income improved 25% to Rs 1857.65 crore, while non-interest income jumped 18% to Rs 954.34 crore in FY2018. The expense ratio dipped by 909 bps to 47.6% in FY2018 compared to 56.7% in FY2017. The operating expenses rose 3% to Rs 1338.82 crore, while provision and contingencies jumped 120% to Rs 1163.01 crore. The profit before tax declined 34% to Rs 310.16 crore in FY2018. After considering write-back tax provisions of Rs 15.45 crore, the net profit dipped 28% to Rs 325.61 crore in FY2018.

Notes:

The bank utilizing the dispensation to spread provisioning for mark to market (MTM) losses on all investments held in AFS and HFT for Q1FY2019 equally over up to four quarters, made provisions to the tune of Rs 13.41 crore for Q1FY2019 deferred an amount of Rs 40.22 crore, which will be spread equally over the remaining three quarters.

Karnataka Bank: Financial Results