MC Interview: Overall growth is on track, says Karnataka Bank MD

In the July-September FY24 quarter, we recorded a profit of Rs 330 crore, which was 20 percent less than last year. But in the corresponding quarter last year, we had a one-off recovery from an NPA account of Rs 156 crore, Srikrishnnan said.

Private sector lender Karnataka Bank’s overall growth is on track, managing director Srikrishnan H said.

The lender’s profit in the first half of FY24 was its highest so far, Srikrishnan said in an interview with Moneycontrol. Karnataka Bank shares have gained 42 percent so far this year.

On concerns expressed by the regulator over unsecured loans, Srikrishnan said the Mangaluru-based bank has an unsecured retail portfolio of about 8.9 percent. Edited excerpts:

What is your assessment of Q2 earnings?

In the July-September FY24 quarter, we recorded a profit of Rs 330 crore, which was 20 percent less than last year. But in the corresponding quarter last year, we had a one-off recovery from an NPA account of Rs 156 crore. If you take [away] the one-off recovery, there is a growth in PAT of around 29 percent. Additionally, there were legacy issues at the bank which we are sorting out.

We recorded a profit of Rs 700.96 crore in the first half of the financial year. This is our highest ever half-yearly profit and our growth remains on track.
Our deposit growth has also been robust wherein we are growing at 8-9 percent.

There was pressure on NIMs (net interest margins). How do you see this?

Pressure on net interest margins came from the rising cost of funds. We had previously given guidance on NIM for FY24 at 3.5 to 3.7 percent and we stay on this guidance.

Also read: Banks see pressure on NIMs but asset quality improves

Your NII (net interest income) grew marginally. What happened?

We had some improvement in our net interest income in this quarter. However, this is linked to our advances growth. With our advances growth picking up, we expect the NII to improve further in the remaining quarters of FY24.

The CASA (current and savings account) ratio fell on a YoY basis. What is the strategy on deposits?

There is an element of seasonality in our CASA due to the nature of our CASA base (agriculture, MSMEs) and it usually picks up in Q3 with the festive and harvesting season coming in. We recently gathered a team of 200-300 on-field sales officers who are working on mobilising deposits for us. They are supported by over 400 feet on the street. We are also making inroads into government business.

Other than this, we are comfortable having a current account and savings account ratio of 32 to 33 percent.

The Reserve Bank of India has been cautioning banks on their unsecured retail business growth. How has it been for Karnataka Bank?

Our unsecured business is through partnerships and tie-ups with other companies and this business is working safely for us. We have a total of 8.9 percent of our portfolio exposed to unsecured retail business.

Also read: Unsecured loans not a worry for SBI, says Chairman Dinesh Khara

What would be your overall growth outlook for Q3 and Q4?

Our return on assets would be around 1.2-1.4 percent and return on equity around 15-18 percent. Additionally, we are looking at growing our advances by 18 percent and deposits by around 10 percent.

We expect our business to get a boost as we have some government business lined up and we are enabled for customs duty and GST collections and CBDT (Central Board of Direct Taxes) is on the verge of certifications.