Analyst Meet / AGM - Analyst Meet

16-May-2019, 11:08
Karnataka Bank conducted an analyst meet on 15 May 2019 to discuss the financial results for the quarter March 2019 and prospects of the Bank. Mahabaleshwara MS, MD & CEO of the bank addressed the call:

Highlights:

• The bank has recorded record high net profit for the year ended March 2019, while exhibited improvement in the asset quality with the decline in GNPA and NNPA ratio.
• The bank has improved CASA ratio, while there is no dependence on bulk deposits. The bank aims to improve CASA ratio to 30% in next 2 years from existing level of 28% end March 2019. The bank has setup dedicated team to boost CASA deposit. The bank proposes to introduce tab banking for account opening in FY2020.
• The share of retail loans stood at 42.8% end March 2019, while bank aims to gradually increase the share of retail loans.
• The bank is targeting RoA of 0.8% for FY2020 and 1% for FY2021. The bank expects to record double-digit return on equity for FY2020
• The share of alternate delivery channels in overall transactions of the bank has as increased to 78% end March 2019.
• The bank is targeting the business turnover of Rs 1.44 lakh crore by end March 2020 of which advances will be Rs 64500 crore. The bank expects to sustain 16% growth in its advances for FY2020. The bank has set up dedicated self teams would support loan growth.
• The bank has a sufficient capital to grow loan book, while it would take steps to augment capital base.
• Currently, the bank has 12 regional offices and bank proposes to add 2 more regional offices, while the bank also proposes to open regional collection centres for all regional offices in FY2020.
• The bank has witnessed 11% decline in the net interest income in quarter ended March 2019, while the net interest income rose mere 2% in FY2020. The accelerated transition of loan book to MCLR based lending rate system has primarily impacted the yield on advances and margins of the bank.
• As per the bank about 67% of the total loans have shifted to MCLR based lending rate system of which 77% loans are at one year MCLR. Overall 52% of the loans of the bank are at 1 year MCLR.
• Going forward, the bank expects to arrest moderation in yield on advances and improve net interest margin to above 3% by end March 2020. The bank has increased its MCLR by 65 bps from 8.75% to 9.4%. The bank is also taking new exposure at above 10% interest rate except housing loans. The bank is targeting double digit growth in its net interest income for FY2020.
• The bank expected to record double digit growth in its fee income for FY2020.
• The bank exposure to NBFC sector stands at 15% of the overall loans. With regard to IL&FS, the bank has exposure of Rs 150 crore which is already classified as NPA. The bank had made provision of 15% in Q3FY2019, which is accelerated to 54% in Q4FY2019.
• Within the NBFC sector exposure, about 98.2% exposure is rated A and above, while the exposure rated below BB stands at 1.79% end March 2019.
• About 24% of the NBFC exposure is towards public sector NBFCs, while the balance 76% exposure relates to private sector MBFCs. Further breakup of NBFCs exposure shows housing finance companies account for 34.66%, commercial finance companies at 49.47%, infrastructure finance 10.62%, asset finance companies 4.13%, core investment companies 0.94% and small finance bank 0.23%. The bank would not take any further exposure to NBFCs and would be taking only selective exposure to the NBFCs.
• The bank exposure to agriculture sectors stands at 15.91% end March 2019, while the bank would take additional agriculture sector exposure only after election.
• Housing finance loans of the banks are processed and assessed through a team of 120 employees, while the bank expect cut this number to 20-25 employees with the adoption of new technologies and digitalization.
• On asset quality front, the bank has maintained provision coverage ratio of 50 to 60% given 87 to 90% of the loans of the bank is secured loans. The bank aims to improve its provision coverage ratio to 60% by end March 2020.
• New branding exercise is also underway, while bank aims to emerge as number one among first generation private sector banks by its centenary year of 2024.
• The risk weighted Assets of the bank stood at Rs 47945 crore of which credit related risk weighted assets stood at Rs 41923 crore end March 2010, which shows moderate growth from Rs 44981 crore and Rs 39000 crore a year ago.
• The fresh slippages of loans have declined to Rs 1448 crore in FY2019 from Rs 2120 crore in FY2018. The fresh slippage ratio of the bank has declined from 5.89% in FY2018 to 3.16% in FY2019, while the bank expects to further reduce fresh slippage ratio to 2-2.25% in FY2020. The quarterly slippages are expected to be contained at 0.5% -0.6%.
• The bank does not have any exposure to Jet Airways, Zee and Essel group. However, the exposure to ADAG group stands at 0.31%, DHFL at 0.41%, Indiabulls at 0.91%, Religare at 0.1% and IL&FS at 0.31%.
• The bank has exhibited decline in credit cost to 1.39% from 2.29% last year, while the bank expects to reduce credit cost below 1% in the range of 0.7% to 0.8% in FY2020.
• The bank expects two accounts with exposure of Rs 150 crore under NCLT to get resolved in Q1FY2020.
• The bank has a moderated its branch opening for FY2020, while expects its staff level to remain steady. The bank is also shifting, resizing and relocating its branches to maximum utilization. It has closed down non-profit making branches.
• The bank is taking various steps to control cost-to-Income ratio, while it expects its cost income ratio to remain above 50% in the range of 50 to 54% in FY2020.
• The bank proposes to add 24 branches in FY2020 raising the overall branch count to 860 branches by March 2020. The bank would focus on adding smaller size branches.
• The bank aims to introduce digital products in the personal, housing and auto loan segments during FY2020. The bank would launch online mutual fund platform. The bank would also set up contact centre in FY2020
• The bank has made provision for employee wage revision at the rate 10%, while the final rate of wage revision is yet to be finalized.
• The bank expect tax rate at 22% in FY2020

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