Ladies and gentlemen, good day and welcome to Karnataka Bank Q2 FY 2025-2026 financial results conference call hosted by Karnataka Bank. We have with us today our top management team, Mr. Raghavendra S. Bhat, Managing Director and CEO, Mr. Vijay Kumar P H, Chief Financial Officer, Mr. Raghuram H S, Chief Risk Officer, Mr. Vinaya Bhat P. J., Chief Compliance Officer, Mr. Jayanagaraja Rao S., Head of Inspection and Audit and Internal Audit HIA, Mr. Niranjan Kumar R, Chief Human Resource Officer and Head of Branch Banking Department, Mr. Nagaraja Upadhyaya B, Head of Credit Sanction Department, Mr. Chandrashekara G., Head of Credit Sanctions Department, Mr. Sham K., Company Secretary and Head of Operations Department, Mr. Sreedhar S, Head of Credit Monitoring Department, Mr. Raja B S, Chief Operating Officer, COO. As a reminder, all participant lines will be in the listen- only mode.
There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch- tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Raghavendra S. Bhat, Managing Director and CEO. Thank you, and over to you, Mr. Bhat.
Yeah. Good evening, everyone, and thank you for joining Karnataka Bank Q2 of FY 2026 earnings call. It is always a privilege to connect with our valued investors and stakeholders. Today, we will review the bank's performance for the quarter ended September 30, 2025, share key financial highlights, and provide insights into our strategic direction for the coming quarters. In line with our previous quarter's earnings calls, we have allowed our investors ample time to go through the financial results and investor presentation, both of which have been uploaded post the conclusion of our board meeting held on 8 November 2025. As you know, the first quarter of FY 2026 was a period of significant transition for the bank. This quarter marks my first full quarter as Managing Director and CEO, and I am pleased to report that we have made steady progress in executing our strategy.
As we moved into the second quarter, the bank continued its journey with a business-as-usual approach, building on the momentum of the previous quarter, as well as utilizing the advancements made by the bank in previous years in terms of IT infrastructure and products. During this period, we have successfully navigated several challenges while maintaining focus on our strategic priorities. Our mission and vision remain clear and steadfast as we continue to pursue with renewed focus and energy our commitment to disciplined growth, operational excellence, and strategic execution aligned with our long-term goals. Before diving into numbers, let me emphasize that our approach this quarter was guided by three priorities: enhancing retail and MSME growth to build a resilient and diversified portfolio, optimizing funding costs through CASA, retail churn and reduction of high-cost bulk deposits. Number three, maintaining asset quality while improving profitability metrics such as ROA and ROE.
The banking environment continues to evolve, influenced by macroeconomic factors such as interest rate movements and liquidity conditions. During Q2, the repo rate reduction impacted yields across the industry. For Karnataka Bank, this meant recalibrating our lending mix to protect margins while continuing to serve our customers effectively. Our strategy remains clear. Retail, agri, and MSME, we call it as RAM. Segments are the cornerstone of our growth. Corporate portfolio rationalization continues, reducing exposure to low-yielding large corporates and replacing opportunistic IBPC advances with higher-yielding direct loans. Digital transformation is accelerating with new products and platforms under development to enhance customer experience and operational efficiency. Let me now present the business highlights. Aggregate business stood at INR 176,461 crore as of September 30, 2025, marginally down by 0.6% QoQ from INR 177,509 crore in June 2025.
While this reflects a temporary slowdown, it is aligned with our strategic shift towards quality over quantity. Profit after tax. Q2 FY 2026 PAT of INR 319.12 crore, as against INR 292.40 crore in Q1 FY 2026. QoQ increase of 9.1%. YoY, there is a decrease in PAT from that of INR 336.07 crore in Q2 of FY 2025. Further, in line with the bank's commitment to increase PCR, the bank has continued making accelerated provisioning, and the PCR presently stands at 60.22%, excluding technically written- off accounts. Gross advances. Gross advances stood at INR 73,644 crore as on September 30, 2025, reflecting a QoQ degrowth of 0.8% from INR 74,267 crore as on 30th June 2025. Our overall strategy is to continue to focus on growing retail, agri, and MSME, where the growth was led by MSME, housing, and gold loan portfolio with a net book accretion of INR 392 crore QoQ in the RAM segment.
The bank has been committed to reduce its exposure to low-yielding large or mid corporates that were opportunistically deployed for better yields than treasury. As conveyed during previous calls, we have started replacing IBPC book with higher- yielding loans. IBPC portfolio as on 30 September 2025, was INR 1,860 crore as against INR 3,315 crore as on 30th June 2025. Accordingly, around INR 1,455 crore of IBPC advances have been replaced in Q2. On a YoY basis, retail, agri, and MSME segment in Q2 FY 2026 has grown by 4%, while corporate advances have de-grown by around 12%. This is very much in tune with the overall strategy of the bank to create a robust retail segment, wherein the business per account will also be on a higher side.
Thus, as we move forward, we will be continuing the strategy to accelerate retail growth while also stabilizing our mid-corporate and large corporate portfolio with good quality and better- yielding loans. Aggregate deposits of the bank stood at INR 102,817 crore as on September 2025, reflecting a QoQ de-growth of 0.4% over June 2025 from INR 103,242 crore. CASA deposits stand at 31.01% of aggregate deposits as against 30.84% in June 2025. It is to be noted that in absolute terms, our CASA deposits have grown 0.15% QoQ over June 2025. CASA accretion remains a focal point for us, and the bank has come up with the focus strategies to further improve CASA build-up during the current year. The bank has continued to focus on shifting high-cost bulk deposits to granular retail deposits of less than INR 3 crore.
Bulk deposits as a percentage of total deposits have come down from 5.4% as on 30th June 2025 to 5.3% as on 30th September 2025. Similarly, bulk deposits as a percentage of term deposits have come down from 7.9% as on 30th June to 7.6% as on 30th September. Karnataka Bank, going by the well-stated strategy, is reducing the focus on accepting costly bulk deposits, and majority of the deposits are renewed at the prefixed card rates. This helps the bank to have a control on the cost of deposits. Retail term deposits that is less than INR 3 crore have seen a marginal degrowth by 0.4% on a QoQ basis from INR 65,786 crore as on 30th June 2025 to INR 65,532 crore as on September. On a YoY basis, retail term deposits has grown by 8.2%.
Our focused new product development and launches continue to be on track to fill in some remaining gaps in our product offerings. Launches planned in the coming quarters: PM VidyaLakshmi product for education loan, pre-approved personal loans for salaried employees, surrogate-based lending for retail and MSME, supply chain finance, SHG, self-help group lending to launch a dedicated product for lending to SHGs, green deposit, merchant payment app. Net interest income reported at INR 728 crore for the Q2 of FY 2026 as against INR 756 crore in Q1 FY 2026, showing a QoQ degrowth of 3.6% and INR 833.56 crore in Q2 of FY 2025. Though the cost of deposits and cost of funds have reduced, the fall in yield on advances has put a pressure on our overall NII on a QoQ basis.
Owing to our reduction in composition of bulk deposits in total deposits, our cost of deposits has reduced on a QoQ basis from 5.73% for Q1 FY 2026 to 5.54% for Q2 FY 2026. In conjunction with our added focus on RAM segment, we should see an improvement in NII during the second half of the year. Net interest margin stood at 2.72% for Q2 FY 2026 versus 2.82% in Q1 FY 2026 and 3.23% in Q2 FY 2025. The fall in NIM is mainly on account of reduction of External Benchmark Lending R ate driven by repo rates cut to 5.5% from 6.5%. 77% of our loan book is EBLR-based, thus having an impact on NIM levels.
We are expecting a bounce back of yield on advances supported through our focus on higher yielding retail and direct- to- corporate advances, and combined with expected easing in cost of funds, which should see us going back to the previous level of around 3% +. Loan yields. As a result of recent cuts in repo rates, owing to reduction in external benchmark rates, partially offset by the changes in product mix, yield on advances for Q2 FY 2026 stood at 8.98% as compared to 9.28% in Q1 FY 2026 and 9.55% in Q2 FY 2025. As mentioned during the previous quarters, the bank remains committed to its strategy of replacing the bulky opportunistic advances with direct- to- corporate and retail advances. Considering the potential churn to higher- yielding segments, we expect to see an improvement in the overall portfolio during the second half of the year.
CD ratio remained our focal attention, but for the quarter ended, it stood at 71.63% as compared to 71.93% in June 2025 and 75.41% in September 2024. Stress assets. Gross NPA percentage as on 30th September 2025 stood at 3.33%, that is INR 2,453 crore, as against 3.46% in June 2025, thereby showing an improvement of 13 basis points. The gross NPA percentage as on September 2024 stood at 3.21%. Net NPA as on 30th September 2025 stood at 1.35%, as against 1.44% in June 2025, thereby showing an improvement of nine basis points. Net NPA as on September 2024 stood at 1.46%, amounting to INR 1,083 crore. The quarterly improvement in both gross NPA and net NPA shows our bank's intensified efforts to control slippages and improve monetary efficiency through regional collection centers. Credit costs showed a remarkable improvement at 0.03% in Q2 FY 2026 as against 0.16% in Q1 FY 2026.
Gross slippages at 0.35% in Q2 FY 2026 as against 0.53% in Q1 FY 2026 and 0.33% in Q2 of FY 2025. Recoveries for the quarter, excluding upgraded accounts, stood at INR 193.25 crore in Q2 FY 2026 versus INR 107.29 crore in Q1 FY 2026 and INR 148.01 crore in Q2 of FY 2025. Standard restructure advances including related accounts. Standard restructure advances stood at INR 939.35 crore on September 2025 as compared to INR 888 crore as on 30th June 2025, as against INR 1,268 crore as on 30th September 2024. Though there is an increase in the standard restructure portfolio during the quarter, The Karnataka Bank has increased collection efforts, recovering around INR 33 crore post quarter end. Further, around 48% of the restructure advance portfolio amounting to around INR 447 crore, comprises of loans that requires a 30% recovery for upgradation.
The Karnataka Bank is focusing on recovering the same, post which the same would be moved out of the restructure portfolio. These efforts underline The Karnataka Bank's commitment to reducing the restructure portfolio. Provision coverage ratio. Including technical write-off, it is at 81.05% in September 2025 compared to 81.11% in June 2025 and 80.14% in September 2024. Excluding technical write-offs, PCR improved to 60.22% as compared to 59.18% in June 2025 and 55.15% in September 2024, in line with The Karnataka Bank's commitment to improving PCR. Liquidity coverage ratio as on 30th September 2025, LCR stood at 188.16%, as against 200.72% as on 30th June 2025 and as against the statutory target of 100%. Cost of funds. Cost of funds stood at 5.58% in Q2 FY 2026 compared to 5.77% in Q1 FY 2025 and 5.58% in Q2 FY 2025.
The sequential QoQ improvement in cost of funds is expected to continue in the coming quarters as the benefits of the cut in repo rates materializes. This would be better supported by our continued endeavors to reduce the dependence on bulk deposits and replacing the same with retail deposits at card rates and focus on CASA buildup. Cost- to- income ratio for the quarter ended 30th September 2025 stood at 58.93%, as against 58.05% for the quarter ended 30th June. The operating expenses of The Karnataka Bank have reduced by around 2% QoQ, which comes because of multiple cost rationalization and monitoring initiatives undertaken by The Karnataka Bank in a bid to renegotiate rents and vendor commercials and keep operating expenses under check.
The fall in yield on advances has put a pressure on our overall NII on a QoQ basis, which in turn has adversely affected the cost- to- income for the quarter. Owing to a reduction in composition of bulk deposits in total deposits, along with our added focus on RAM segment, we should see an improvement in NII, which will favorably impact cost to income, which is expected to come down to 55%+ in the coming quarters. Return on equity. Q2 FY 2026 return on equity stood at 10.14% versus 9.58% in Q1 FY 2026. Return on assets. Q2 FY 2026 return on asset stood at 1.03% versus 0.97% in Q1 of FY 2026. We expect to end the year with the ROA between 1.1%-1.2%.
We expect improvement in ROA and ROE in the coming quarters in FY 2026, supported by accretion in the higher yielding RAM segment and movement from bulk to retail deposits, leading to improvement in NII, increase in other income, and consequent improvement in tax. CRAR stood at 20.84% as on 30th September 2025, in comparison to 20.46% as on 30th June 2025. I want to reaffirm that Karnataka Bank stands on a strong foundation and is fully prepared to capitalize on emerging opportunities. The progress we have made in strengthening our retail and MSME portfolio, optimizing funding costs, and improving asset quality positions us for sustainable growth in the coming quarters. Our strategic initiatives, ranging from digital transformation to innovative product launches, are not just plans on paper. They are actionable steps that will translate into tangible results.
We expect to see steady improvement in margins, profitability, and return ratios as we move forward. The banking landscape may continue to evolve, but our resilience, adaptability, and customer-centric approach give us a clear competitive edge. With robust capital adequacy, strong liquidity, and a disciplined execution framework, Karnataka Bank is well-equipped to deliver consistent value to our stakeholders. We remain confident that FY 2026 will be a year of transformation and acceleration, and we look forward to sharing even stronger results in the quarters ahead. Thank you for your trust and continued support. I would now like to hand over the call to the moderator for any questions and feedback from our callers that we would be glad to take. Thank you.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Rajesh Kamath, an Individual Investor. Please go ahead. Mr. Kamath, please go ahead with the question.
Okay. Thank you. Happy to see the stable balance sheet. What is the future plans for growth in The Karnataka Bank? We observe you have a good capital adequacy in the system also.
Yeah. Good evening, Rajesh. As I mentioned earlier also, now also, I stand by my word that our focus is only on retail RAM, that is retail, agri, and MSME. This is no doubt will help us in building a stronger balance sheet. Therefore, I am confident that we will further expand our area in those sections. Secondly, the gold loan portfolio, as I was mentioning earlier also, under this RAM, gold loan also is main important area. Last year also it has contributed well. This year also, we are focusing on that. In between, some guidelines have come that made us to go little slow because we have to comply all the requirements also. Therefore, there was degrowth in the agri portfolio also over March figure, and it has come down almost around INR 600 crore. Gold loan has come down in between.
Now it started picking up and around INR 350 crore plus over the March figure has already come, and we are confident that we have already told our regional heads and all the branches in the recently concluded conference also that all branches may not contribute, but out of around 950 branches, around 800 branches can contribute INR 1 crore per month per branch. That whatever mantra has been told to our people, they are on action mode. They will contribute, I am quite confident. in the month of October itself, around INR 400 crore of growth in gold loan has come. Therefore, in the remaining months, that growth will further accelerate, and that gold loan is one more strong area for us, along with retail and MSME. Hello?
Mr. Kamath, are you done with the question?
Yes, I'm done with the question. Thank you.
Thank you.
Thank you.
A reminder to all the participants that you must press star and one to ask a question. Next question comes from the line of Sushil C. Choksey with Indus Equity Advisors. Please go ahead.
Congratulations to Team Karnataka for stable numbers in very much challenging time at your team level and management level. Sir, my couple of questions is for your guidance for the full year or maybe next one-year basis. What is estimated growth on credit, ROA, ROE, NIM, RAM to corporate advances, and cost to income?
Choksey, good afternoon. You have asked all questions put together simultaneously. Because we, as a team KBL, we are also working on that system because we are all focusing on increasing the CD ratio. The CD ratio as of last September, or even for the month of March, for the final year ended March, it was 75%. It has dropped to 71% + as of today. For various reasons, there was a degrowth. Our CD ratio has dropped. Now we are focusing to improve the CD ratio. Minimum CD ratio, our aim is to take it to 80%, but it maybe looks very aggressive target, but unless and until we increase our CD ratio to that percent, as I mentioned earlier also, I stand by my commitment, therefore, we want to take that CD ratio high. Immediately, the growth started happening.
To build that, we had certain plans of action and RLPCs, Regional Loan Processing and Sanctioning Centers, have been set up in all the regions, which initially started with three regions. Now it is extended to all the regions. Added to that, regional heads are empowered now with the delegated power. Earlier, they were not having the delegated power. Priority is to increase the CD ratio. It is over a period of time. By the end of March, I am very much confident that it will be increased. At least to that extent I am focusing. Secondly, you are aware that once the CD ratio is improved, all our other ratios will start improving.
Be it increase in the NII, NIM, spread, or ROA, ROE, including the cost- to- income ratio, because one important agenda, along with the increase in the CD ratio, is to keep the cost- to- income ratio under control. All these issues, what we have perceived, and it is really a challenge for us, therefore, priority is to increase the CD ratio. Sushil , I think if you ask me, CD ratio is 80%. NIM, as I was always telling, 3%+ , ROA 1% +, and cost-to-income ratio to between 55%, 56%. With all these actions, that will happen.
Sir, if you look at your own writing, 72% of your loans are linked to EBLR.
Yeah.
Now we are focusing further on RAM, led by housing loan, auto loan, gold loan, various other things. Entire public sector advances published results for first six months and even peer banks in South. Everybody wants to grow RAM at 16%, 18%, and balance growth is on a lower number. Money market, specifically Treasury, is not likely to support. Every bank is saving CASA. First is our TAT needs to have a fantastic improvement from where we stand. I am not complaining on the current TAT, but if you want a better milestone, our TAT needs to improve. To enable all these points which you have the aspiration for in four and a half months to reach, because we already are November 10. Looking at that, what dramatic changes have we done in terms of executing the exuberance in the aspiration what we have?
Yeah, you are 100% right. While focusing on improving the CD ratio, TAT is the important factor, which, if I am ignoring, that CD ratio improvement will not happen. Therefore, as I mentioned earlier, along with the restarting of RLPCs, regional heads are also empowered, I have mentioned earlier. Along with that, empowering the regional office sufficient, their hands are also strengthened now. I am very much optimistic that it started producing result in October. Therefore, I am quite confident that addressing the TAT issue also very important to me, along with the decentralization of credit sanction. I am quite sure that it will produce a result because sometime back when I or in my previous con call also that there were cases where growth has come to the extent of 27%, particularly in 2017, 2018, and 2018, 2019, it is 19% YoY growth has come.
I am quite sure that with that action, strengthening the regional office and the RLPC center, improving the TAT is also important in my agenda, and the team KBL is working in that direction.
Have you changed the sanctioning power or it is just the processing only?
No, delegated power has been given even to the regional heads, I am telling you, which was not there. A small portion was there, a small amount was there. Now they have been delegated with adequate powers.
In our balance sheet, for INR 10 crore, INR 20 crore is adequate power or larger number?
The regional heads are also depending upon, there are Deputy General Managers, Assistant General Managers. Depending upon the cadre, it has been entrusted. I can tell you that once the power exceeds their power also, there will not be any three-tier layer, or directly from the branch to head office, there will not be any delay. That is important, as you rightly put it up. We will address that issue also.
Sir, my one humble request, when you are analyzing all this, in 2023, Karnataka Bank was trading at a premium to South Indian Bank by INR 500 crore and INR 2,500 below Karur Vysya Bank. I am not even going to City Union, Tamilnad Mercantile, CSB, and others. Kindly have a look on comparative ratios, where we stand today and where we need to strengthen. Do we need more digital capability or human resource or execution capability is your internal challenge? If we showcase that, the gap which has been created in last three years, we need to catch up. That can only happen if team management of Karnataka Bank empowers them.
Sure, sir. All those suggestions are definitely taken into account, and the team is also of the same opinion. Your suggestions are also very valuable to us. We will take it forward.
Sir, good luck to Team Karnataka Bank for a very good result for the coming quarters and the years to come. Thank you. I will come back in the queue.
Thank you, sir.
Thank you. A reminder to all the participants, please restrict yourself to one question. Next question comes on the line of Priyank with Vallum Capital. Please go ahead.
Yeah. Hi, this is Priyank from Vallum. Sir, good to connect again, but let me focus back. Before getting into the specific numbers, my question is, you have started this responsibility? Is the stability around us, is everyone now single-headed focused on the growth which you are sharing with us? Because at least in the month of October or in the recent months, I do find lot of notifications coming out around the resignations of the senior leaderships. My first question to the board, is the leadership stable now? Are everyone now right now focused on the growth, or is there yet more leadership spaces yet to be filled?
Good afternoon, Priyank. Yes, along with that challenge, these challenges are also there, no doubt about it. As I have mentioned during my personal visit to you also when I was in Mumbai, very clearly the management is always on the right track, taking adequate steps to handle this type of eventuality. The people who have come and joined Karnataka Bank, along with that, when they are placed, along with them, the top management under DGM cadre and all, they have been posted with the sole objective and idea of transforming that ideas or experience to the second line. Second line was from our own Karnataka Bank, and these resignations, or whatever is not a threat to the bank. I am confirming that to you. Why? Because the transformation and experience has come or our experience are equipped to handle that kind of situation.
The resignations have happened, no doubt about it. It is because of personal reasons they have quoted, and we cannot have any control over that. Whoever resigns, we have to make other alternative arrangement. Management is totally aware of that to meet these kind of challenges. As of now, I have no such challenges. People have been in the respective position wherever required, and internal promotions also have happened. I will assure you that this will not come in the way of my growth.
Sure. My first question is on the yields. I think the whole show of the P&L is taken off with the yields falling 30 basis points, higher than even the 20 basis points benefit coming from the cost of funds or cost of deposits. Now it has fallen down even below your targets of 9%, right? This is despite the IBPC book going down, retail books soaring up. I am unable to figure out the core reason of yields going down. 77% of the book, if it is EBLR, the external benchmark, if it is short term yields, or if it is a two-year treasury bill that have seen a quarter-on-quarter increase, or at least according to our view. So why the yields on the book has fallen down?
Yield, see, over a period of one year, this repo rate has reduced almost 100 basis points and the 75 basis points, whatever has happened earlier, the entire repricing has happened on the EBLR portfolio. So there was this drop like anything, particularly highest hit in the previous quarter. I think you agree with me. It is almost in the bottom line now. Going forward, of course, ifs and buts are there depending upon the market condition. But I am confident based on the study, even after this 30th September also, I am very closely observing even the October month also. I am quite confident that this yield or NIM will improve, number one. Number two, we had accepted a particular deposit of 555 days around a year back or so, which was at a high cost rather, depending upon the market condition then.
That has proved to be little bit costly, and it is all now maturing, and that cost benefit also we are going to get now. The liabilities are not getting repriced immediately. It is happening only on the due date, but assets are immediately, as you are aware. Therefore, I am quite confident that this NIM will improve further. Benefit of reduction in cost, though less compared to the drop in the yield. Definitely, it will help us now when we are going forward.
So for H2, should we at least consider 9.25% or 9.5% kind of a yield for H2?
Yeah, 9%+.
9%+.
Yes.
So 9%+, okay. All right. My second question is on the recovery. What I fail to understand is that we have seen a recovery from a standard restructured book of around INR 193 crore.
At the same time, standard restructured book, closing book has gone up quarter-on-quarter by, I think, around INR 60 crore. How does this match it up? I mean, we see a recovery, and then too the closing book goes up.
You mean to say under restructure?
Yes.
Yeah. Restructure in one account that in the last moment it has added. We are quite confident that that will be resolved before November or December 15th. That problem will be over because of some technical issues. It has been added under restructure. We have added that and going forward, that action when it is fulfilled, that will come back.
What was the size of that one account which you had added, which moved the whole book by INR 50 crore-INR 60 crore? Approximately INR 100 crore. Or maybe ex of that one account which technically went into a restructuring.
Yes.
Ex of that what would be the restructured book if that account had not failed in the restructure book?
It is INR 101 crore.
Okay. Given this, should we confirm that we are on a target to achieve this standard restructured book towards the goal of INR 700 crore by March end?
No. See, as I told you, with regard to this particular account, when it is removed, definitely it will be much better figure, number one. Number two, our recovery machinery is on the action front, and you must have seen the stress level also coming down. SMA also coming down, and NPA also is by and large it is under control. Therefore, I am quite confident that this will help me in producing better results in the coming quarters.
30% recovery.
Sir, 48% of the restructured portfolio which requires 30% recovery upgradation. What is the timeline of this?
That continuously we are following it up because you must be aware, you are seeing Karnataka Bank from the past several years, the restructured portfolio once upon a time it was INR 4,000 crore plus. We have brought it down through continuous efforts. Today it is less than INR 1,000 crore.
Sure, definitely. One last thing on the technical written-off book. In H1, and I feel proud about the recovery that we are looking at it. We have recovered almost INR 80 crore in H1. What would be the closing technical written-off book today, and by how much the gross book has reduced in this recovery process of INR 80 crore in last six months?
One second. It's closing.
Mm-hmm, closing.
So c losing is INR 42 crore.
My CFO will answer that. One second. Yeah.
Sir, good evening. As on September 30, the restructured book was INR 2,700 crore. We have sold during the September quarter a portfolio of INR 355 crore, realizing INR 42 crore by way of sale to ARC. So you sold INR 355 crore worth of book and realized INR 44 crore, right?
Yes.
Okay. What is the plan for this balance INR 2,700 crore? What kind of yield and the timeline we should consider?
Now, in the technically written- off account, continuous efforts are on, and recovery made under technical written- off account, you have the figure with you?
INR 100 crore .
Around INR 100 crore we have recorded under technically written- off account. The continuous effort, though it is technically written off, we will not forget. Continuous efforts are there on technical written- off accounts also, like NPA. NPA and technically written off, both are same to us as far as recovery is concerned because it is contributing to the bottom line.
Yes, certainly, sir. This is what I would like to add. To most of the other regional or your peer banks who are listed, you just need to reconcile their technical written- off and the recoveries that they have seen over last two, three years from the technical written- off , it has almost contributed 20 basis points to their ROA. This should certainly also contribute to us in case if the board becomes more vigilant around the faster recovery process, it can be a path towards what we are also looking forward and a path which we are sharing together.
We have business. How business targets are there to the regions, even we have the target for technically written- off accounts also. It is getting continuously monitored.
Sure. Thank you, sir. I will get back into the queue. Thank you for all the questions.
Thank you very much. Thank you, Priyank.
Thank you. A reminder to all the participants that you may press star and one to ask a question, and also please restrict yourself to one question. The next question comes from the line of Sarvesh Gupta with Maximal Capital. Please go ahead.
Good afternoon, sir, and thank you for-
Good afternoon, Sarvesh. Good afternoon.
-thank you for giving the opportunity. Sir, first question is on the cost to income. Earlier, if I see FY 2023, 2024, we were averaging around 50% odd on the cost to income. Then under the erstwhile management, there was a lot of hiring to promote growth in the loan book, which never happened actually. Now that you have taken over, what are these excess costs that you see in the system, which can be taken out, if you can quantify a little bit on that? Because we are also seeing a lot of employee resignations. We are seeing employee costs coming down this quarter, although other OpEx has gone up. What is our path on reduction on the OpEx, and would it impact our loan growth, or how are you seeing to grow without increasing our cost to income?
Yeah. See, this cost-to-income ratio also is the derivative of our main other income, like CD ratio when it improves. One is that is direct hit here also. If it is improved, this will come down, number one. Number two, it does not mean that we have totally lost focus on controlling the expenditure. Other expenditures, if you analyze whatever is published, there is a reduction in other expenditure also, which is under control. Number three, normally during the first quarter, this cost-to-income ratio will be slightly on the higher side also. Still, we have control. Why I'm telling is, during the first quarter, all this investment on IT, AMCs, and all falling under the first quarter. Going forward, only when such cases are there, where AMC is falling due on an annual basis. Otherwise, normally it is falling under Q1 only.
Fourth one is how to control the cost-to-income ratio, you are also aware. One is increase in the income, fee-based income. Other one is cutting the cost. Added to that, the target which I have kept for improving the CD ratio. With all these things, it will come. But by and large, I have seen in the published results, which is very much available on the website, the cost is under control, by and large. I don't say everywhere it is better, but we have not lost focus there. Definitely, we will be focusing on that. One is reducing the cost, increasing the fee-based income. Sarvesh, this is the main our idea to control the cost and keeping the cost under control.
Sir, I understand CD ratio and everything, but my main point was that the cost-to-income ratio went up from 50% to more than 60% under the previous management. After you have taken over, are there some low-hanging fruits in the reduction of costs that you see, which were excess cost because the fruits of those costs never occur to The Karnataka Bank? The advances growth was never happening. Now, are there some excess costs that you have identified which can be taken out?
No. Cost, see, the same question you are asking in a different manner now. What I am trying to tell you is the two, three areas. Now, for example, it is under control. Under control in the sense we are watchful. Say, for example, rent of the premises. We have 955, 956 branches. All are not happening on the same day because this rental agreement every year, this cost is bound to go up once in three years or five years, depending upon the individual cases. Now, when these things are coming into picture, while focusing on reduction cost, reduction of rental also, every year there will be renewals. Renewal of some premises which are falling due. There we are reducing our cost rather than the investment. Otherwise, we are shifting if the location is not good. Of course, if the location is excellent, we cannot, because business also, we cannot compromise.
So many issues are there. In addition to that, the cost which I have already incurred earlier on IT, that definitely we are getting reward now. We started getting. It is all investment which has gone, huge investment has gone during last year and last to last year. That benefit when so many products are in the launching stage, when we are launching that, it will contribute by way of additional business, by way of income also, or it will help to reduce the operational cost. With all this put together, I am quite confident that we should keep the cost under control and get the additional business.
Okay. Secondly, sir, on the NIM part. Now, in the last two quarters, we have slipped from 3% to 2.7% because of the fall in the EBLR, which we understand. But going forward, if I look into it, you have repricing of deposits, which can happen. You have more of RAM mix in the advances, then you can have higher CD ratio. Given all of that, the aspiration to just reach 3% looks to be a very conservative one. I mean, where do you aspire to sort of reach in two, three, four quarters, in terms of NIM? Because we have multiple levers. If we are able to execute it well, we can get far beyond 3%.
Yeah. Growth is here, even we are trying to control some areas, some areas are also getting affected. Here, I think, twice we have reduced the rate of interest on deposits because our capital adequacy ratio is quite good. When the advance is not happening, we decided to control the cost, which has impacted slightly the growth on the liability side also. While focusing for the NIM, the profits, somewhere we have to take a corrective action, and taking that into account, one more thing I want to assure you because it may look a bit aggressive or optimistic also, growth. Normally, this growth comes. I have told in my previous call also, this first quarter growth doesn't come normally, if you analyze any bank for that matter. Second quarter also it starts. Second quarter also due to transformation changes and all this time it has affected.
Now, this is the period, this second half is the crucial period for us. No doubt, even I am also aware that one month is already gone. In the remaining months, we have to put our best, whatever turnout is best is possible. This second quarter normally gives growth in CASA, and I have analyzed the history for past five, six years or 10 years, for that matter in my earlier tenure also. This growth comes particularly in CASA during the second half. We have lot of competitions, plans, and target achievements. So many things are there. Even for your kind information, this CASA additional growth, no doubt it is not visible in the trial balance, but from the fresh additions of CA and SA, put together INR 870 crore has come in the balance sheet. Otherwise, it would have been further less.
Why I am telling this is, this two or five months remaining is a challenge for us. Along with the challenge, we have to put our best efforts. I am repeatedly telling my strength is my team. My team started working on it and I have traveled also, couple of regions also I have gone personally. Couple of regions, my general managers and CBO, COO have gone. Message has been conveyed very clearly. The growth has to come from CASA. When the CASA growth happens, I think best pricing or NIM will improve, and competitive pricing is also possible. But you mentioned about the growth aspiration. Yes, that challenge is not there, but with the confidence and the team spirit, whatever is built up, I am quite optimistic, though it looks bit aggressive, but definitely we want to maintain that. We want to prove that also.
This is my assurance to you also, and after taking the assurance from my team, I am quite sure that this we want to make it a reality. Hello?
Thank you.
Yeah.
Mr. Gupta, please rejoin the queue for more questions. Next question comes from the line of Pranay Dhelia with Panchatantra Advisors LLP. Please go ahead.
Hello, sir. Good evening, and congratulations on a good set of numbers under the circumstances. Namaste. I hope you are well. Sir, I do not have anything on the numbers. It is there for everybody to see. Everybody else in the call previously also cited only one thing. That vis-à-vis all our peers, our bank has not been taken with seriousness, or the numbers have been applauded by the industry or any of the investors, which is a very worrying sign. As shareholders, I have been a shareholder for more than eight years, and I would say that the FD return of the bank has been better than the shareholder return. Any other bank which was pitiful compared to us has jumped up, moved ahead of us. So what is it The Karnataka Bank doing to try to change the image, get investor interest?
I mean, it is better that you get delisted otherwise. If you are making 5.5% on the share, the FD is giving a better rate, I assume.
Yeah, the situation at present, because there is excess liquidity in the market, the rate of interest on deposit is no doubt it is less. But coming to our profitability, yes, some two, three years, we have not as far as profitability is concerned, it is flat. We really want to build a stable portfolio which gives us better yield. Ultimately, main business, you are aware, you people are quite experienced in the market also. Main business of banking is accepting and lending. There we have to have the full control. Ultimately, we have to earn. To earn, we have to build a credit portfolio. Once that is done, I am not happy with the credit portfolio, whatever it is there now, the base figure. I can tell you that only. Only thing is, kindly bear with us. "You are with us for the past eight years," you said.
Yes, changes started happening, that you can see. Going forward, definitely, I assure you from that point of view. Today, the investor equity is not. Even I am also not happy. But yes, that is also a commitment.
Have we got a better ESOP plan to get good talent, retain, somewhere the expansion? Can we guide for better profitability for the future?
Yes, that right now we have not yet planned because I joined three months back. Lots of plans are happening. Board is also very positive with regard to the growth. Growth has to happen. This is the direction from the board also. What you are doing, whatever support you want, you go ahead. With that, we are planning to total turnaround by way of business. We are working on it, the ESOP plan . Definitely, a lot of things are there, which I am not in a position to tell you right now. Yes, some serious discussions are going on. First, business has to happen. Then along with that, support is coming from the board. With all these things, talent, getting the people, right kind of people, right people at a right place, all these things, we are working on it. Definitely, I will assure you that.
Okay, fine, sir. I just hope that as shareholders, we don't have to wait.
Yeah.
I mean, long term also has own frustrations.
Yeah.
Thank you.
Thank you.
Thank you. Next question comes from the line of Pratik Jain, an Individual Investor. Please go ahead.
Hello, am I audible?
Pratik ji, namaste.
Hi, sir. Thank you. Thank you for the opportunity. Sir, my only question is that last time, I guess one month back, RBI had granted an extension to fill a position for the new CEO. Is there any update on that end, sir?
Yes, board has taken a call, and board has recommended the name also to the regulator. It may come any time.
Okay, sir. Okay. Thank you. Thank you. That was my only question.
Thank you.
Yeah.
Thank you. Ladies and gentlemen, that was the last question for today. We have reached the end of question and answer session. I would now like to hand the conference over to Mr. Raghavendra S. Bhat for closing comments.
Yeah. Good evening, everyone. As I mentioned earlier, thank you very much. Investors are our strength and supporting us from the beginning all along as long-term investors, it is our duty to bounce back and meet their expectation also. With that, as I mentioned earlier also, at the cost of repeating once again, I am telling you that our growth mantra is to grow in credit first, quality growth in liability side also, CASA, and ultimately to aim at NIM or ROA or controlling the cost to income and working within the framework of the regulator, duly complying all the requirements, and to the satisfaction of the board, to the satisfaction of the investors, and all the stakeholders. I am quite confident that all this, whatever assurance I have given, definitely we will try to meet that. Thank you very much. Kindly bear with us and support us.
We'll be there with you. Thank you.
Thank you. On behalf of Karnataka Bank, that concludes this conference. Thank you for joining us. You may now disconnect your lines.
Thank you. Thank you.