Ladies and gentlemen, good day, and Welcome to the Q1 FY 2025 earnings conference call hosted by Karnataka Bank. As a reminder, all participant lines will be in the listen-only mode, and 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. Srikrishnan, MD and CEO from Karnataka Bank. Thank you, and over to you, sir.
Thank you, Sudhan, and good evening to all ladies and gentlemen. This is Srikrishnan, MD, CEO of Karnataka Bank. I am speaking to you from our headquarters in Mangalore. I am joined by our Executive Director, Sekhar Rao, Senior Management Team Members, GMs, Ravichandran, who is Head of Credit, Jayanagaraja Rao, who is GM in charge of branch banking and retail, the Chief Compliance Officer, Vinaya Bhat, CFO Abhishek Bagchi, and Company Secretary Shyam. We are happy to talk to all of you and introduce the Q1 FY 2025 results for Karnataka Bank. Post-completion of the successful centenary year in FY 2023-2024, we had major celebrations in February 2024. The financial achievements that included the highest record pre and post-tax profit, a record capital-raising program.
We are very pleased to inform you that we had a very good first quarter for FY 2024-2025, with growth that has been registered across most of the key metrics. We continue to focus on the critical metrics that will define our bank's performance in advances, deposits, improvement in quality of the advances book, profitability and NIM, and very favorable ROE and ROA for our stakeholders. We are on an accelerated path in all of this. Some very brief comments about the numbers. We have recorded the highest business turnover in the history of the bank at INR 1,75,619 crores. This is up by 17.1% on a year-on-year basis from June 2023 corresponding quarter Q1 of FY 2024, and by about 2.7% on a quarter-on-quarter basis from the quarter ended March 2024.
On profit after tax, we recorded the highest, again, this is the first in the bank, highest quarterly profit of INR 400.33 crores for quarter one FY 2025, as against the last corresponding quarter, INR 370.7 crores for Q1 of 2024 and 2023, and that is an increase of about 8%. On a quarter-on-quarter basis, the PAT, which was INR 274 crores, of course, we had a one-timer there, but on the basis of actual, which is INR 274.24 crores recorded in March of 2024, the increase has been 43.2%.
Due to a change in the accounting policy, which is again dictated by the Reserve Bank of India guidelines pertaining to investments, transitional adjustments on account of available for sale, which is the AFS book and other securities, has been credited to the AFS reserve contrary to us taking it into P&L. The opening revenue reserve to the extent of INR 106.8 crores and about the revenue reserve of INR 24.68 crores has been already posted into this reserve. If we had continued the earlier policy, the income of investments would have been lower by INR 7.7 crores, but other income would have been higher by INR 30.41 crores, whereby profit after tax would have been higher by INR 32.74 crores.
This has not been taken into our profit, as I said earlier, and this has been transferred to the AFS Reserve book. On the other parameters, starting with gross advances, we clocked the highest in the bank's history of INR 75,455 crores as on June 30th, [audio distortion] as against INR 73,001 crores as of March 31, the previous quarter, reflecting a growth of 3.4% on a Q-on-Q basis and a Y-on-Y basis, a growth of 19.7% when compared to the Q1 of 2023/2024. This again is a good number because on an annualized basis, we are still continuing the trend.
The good part about this growth is that out of the INR 2,454 crores that we have grown, closer to INR 1,200, which is almost a 50%, has come from retail advances. This is a significant change compared to the past, where we have been growing the retail book and continues to grow so. Of course, our focus on mid-corporate advances on the RAM segment and also some of the large corporate advances that we've been taking advantage of an opportunistic interest rate scenario compared to our treasury investments are continuing. Direct-to-customer advances and also making sure that we are establishing new relationships is continuing because of the new setup that we have and the addition to our leadership team in the form of a head of corporate business that we have done in the previous quarter.
On aggregate deposits, we have clocked a record, a magic number of INR 1,00,163.92 crores. This is again, ladies and gentlemen, the highest in the history of the bank as against INR 98,057 crores as of March 31st, reflecting a Q1 group growth of over 2.1%. On a Y-on-Y basis, we have clocked the growth of 15.2%, which is very much comparable with the market overall across all banks. We were INR 86,959 crores as of June 30, 2023. The CASA deposit stands at about 30.55%, and this has decreased and this is some area which we need improvement. This is a market-wide phenomenon, though, not that we are taking cover under that.
Having said that, we are proposing a very clear strategy on covering this CASA through direct collection of taxes, GST, customs duty. Also, we are happy to announce that we have integrated with Khajane-II, which is the Government of Karnataka Treasury Systems, where we will soon be a bank to collect challan receipts for various government payments. So this will again have a focus as far as our overall liability accretion is concerned.
In addition to that, the last quarter, we have launched a senior citizen product called KBL WISE, which again has a top of insurance and a lot of other very good features, which has actually got a wide publicity and good traction, and we believe that we will be able to extend such new features to segment-wise retail on the liability side, which will cover self-employed, students, and a couple of other bundled products like we have done with salary savings and a Current Account Purple Privilege product that we have launched in a couple of quarters before. So based on all of this, we believe that we will be in a better position as far as our CASA is concerned. I go to the next point, which is related to the NII, which is net interest income.
We clocked at INR 903 crore in Q1 FY 2025, which has increased from INR 834 crore as of March 2024, and this is significant. There are some couple of one-off interest related to income tax receipts, the refund that we have, et cetera, which is included in that. Having said that, there is a very good traction as far as our NII is concerned. On the NIM, we have increased it by almost 22 basis points from the previous quarter, where we are at 3.54% for Q1 FY 2025 compared to 3.32%. So this is a healthy NIM increase which has come in. Of course, the last year, which is the same quarter, we were even higher. This is again the compression on account of a market-wide phenomenon which is continuing.
In any case, our guidance to the market, which we have always said, is that we would be between 3.5%- 3.7%, and we stay within the guidance as far as this is concerned. On the CD ratio, we've been continuously increasing, and we stand currently at 75.33%, up from 74.45% as of March and 72.46% as of June 2023. Coming to the health of our assets, which is the quality of our asset book. The stress assets, our GNPA is more or less at the same steady level. There is no real increase or decrease. It remains stable at 3.54% and 3.53% between this quarter and the previous quarter, but significantly improved compared to the last year, the corresponding quarter, where it was 3.68%.
There is a contraction, which is almost like 14 basis points on a larger base, which I am sure all of you will appreciate that this is directionally going the right way. On the net NPA, there has been a slight increase from 1.58% last quarter to 1.66%, and this is primarily on account of some recoveries which were slated for Q1 that have got shifted to Q2. In fact, in the last about couple of two weeks in July, we have collected a significant amount which were otherwise pertaining to the previous quarter. On the overall, we are happy with the net NPA collections, and we are seeing a push as far as recovery is concerned in July 2024 and thereafter. A quick breakup in terms of the GNPA and the NPA numbers.
This is something that was requested post and we thought that it is appropriate to also call out a few numbers here. Our opening gross NPA was INR 2,578 crores. All of the numbers that I am saying is all uploaded in our investor PPT, both to the exchanges as well as on our website already. Just to repeat, our opening gross NPA was INR 2,578 crores. The additions were INR 416 crores, and the restructured assets portfolio has performed well, and some slippages have happened from that, which are included in the INR 416 crores.
The reductions, which include primarily upgradation, recoveries, and the technical write-offs, all of that put together, has been about INR 326 crores. Thereby, about INR 90 crores is the net addition to the overall gross NPA and the technical write-off position as of June 2024, which is provisional, of course, is about INR 2,900 crores.
We have been recovering both from our regular book as well as the technical write-off book, and this has resulted in our gross slippages, which has really dropped down to 0.59% in June 2024 compared to the previous quarter of 0.79% and about 0.5% as of the last year's corresponding quarter. Recoveries during the quarter, excluding upgraded accounts, have been at INR 133.12 crores for Q1 2025, while it was about INR 197.3 crores for the Q1 FY 2024. Sorry, Q4 2024, that is March, and Q1 FY 2024 was INR 167.88 crores. Here again, as I said, while the collection was INR 133 crores, there has been a substantial recovery, which was otherwise slated for Q1, which has happened in the first two weeks of July, which will get reflected in this quarter.
On the standard restructured advances without related accounts, the bank has done well, where the number has come down to INR 1,160 crores compared to the previous INR 1,338 crores as of March 31st, 2024, the previous quarter, and INR 2,060 crores as of the last year's corresponding quarter. This is a very healthy sign, where we have brought it down substantially from our original position and our original position as of last year. When I say original position, which was during COVID and post-COVID, the total restructured book was over INR 4,500 crores, which has come down to INR 1,160 crores right now. This has also been recorded in our investor presentation because one of the key metrics that we measure at the bank is our gross NPA plus restructured advances as a percentage of our gross advances.
From last June 2023, which was at 7.7%, again, I repeat, GNPA plus restructured as a percentage of the gross advances at that point of time was 7.7%. As of last quarter, March, it has come down to 5.7%, and now as of June 2024, the current quarter, it has come down to 5.39%. Directionally, we are doing well both on our GNPA recoveries and our restructured book, and I believe that we will continue the same kind of trend as we go forward. The PCR, which is the provision coverage ratio, stands at about 78% for Q1 FY 2025 when compared to 79% of the previous quarter. This again reflects the fact that we are adequately covered and both the technical write-off book and the overall book from a health perspective, we believe that we are quite safe and all right.
There are two other very clear metrics which are affecting NIM, which is basically cost of funds and cost of deposits. The cost of funds for the bank was at 5.57% for Q1 FY 2025, and when compared to the previous quarter, it was 5.42%. The primary reason here is that the market was very tight on liquidity, and obviously all the banks were facing this liquidity and also sourcing of deposits issue. Our granular deposits, which continues to be our focus, is definitely on for the 940 branches that we have. While as of 30th June, we have declared only 927, but we have opened 13 branches in the last couple of weeks. The overall number of branches is 940. Out of that, most are really kicking in from our retail term deposits, hence the CASA growth, the liability growth.
We have a very strong retail branch franchise. We have a strong MSME franchise, both in Karnataka and across the country, giving us access to low-cost deposits. CASA bundle offering, which I talked about, which is going to be done through some new product launches in this and a couple of following quarters, will make possibly the Karnataka Bank account that our customers hold with us as a primary account relationship through our digital access. This would help us in capturing larger flows as far as our liability franchise, including the CASA growth. I would like to talk about credit cost. The credit cost has come down relatively and quite a bit to 0.11% for Q1 FY 2025 compared to overall 0.84%. That is for four quarters in FY 2024, and a quarter-on-quarter basis comparison, the previous quarter was 0.2% and 0.28% for the corresponding quarter last year.
This reduction in credit cost is primarily due to result of lower clippages in the first quarter, in addition to our 20% year-on-year growth as far as our net advances is concerned. Coming to two or three other primary ratios. One is cost to income. The bank clocked a cost-to-income ratio of 52.76%. This has been a commitment from the management in the past where we said that there will be a spurt and we would come back to sub 50 in about four quarters and we believe that the reduction which has been achieved from the last quarter, which was very high at 60, and that of course, is due to a one-timer, but otherwise we were hovering around 53% and 53.5%.
That has come down to 52.76%, and this would come down further in the following quarters because of one, there is substantial rationalization of cost structures and a lot of operational efficiencies that we are deriving through centralization. We are setting up a national back office in Mangalore and also cutting down a lot of costs as far as the branches and the franchisees are concerned. This will basically continue as far as and cost rationalization process by the end of this financial year. As far as the two metrics for stakeholders is concerned, the ROE, return on equity, stands at 14.45% for the first quarter, and this is compared to previous quarter of 13.71%.
That quarter, we had raised INR 1,500 crore capital, which has been the reason for that lower ROE and over a period of time, this is normalizing and we believe that, with the above increase in reserves and share capital, the ROE would touch a 15% approximately very soon. The ROA, which is return on assets, stands at 1.38%, compared to the previous quarter of 1.19%, so this is a significant jump. Also, if you look through the previous quarters of the previous year also, we are definitely doing well. We are within our target range there, where we have given the guidance of 1.2% to 1.4%, and we are very much in that range, and we believe that we'll be able to continue in this range. Last one is more from a regulatory perspective, which is on the capital adequacy CRAR ratio.
We stand at 17.64% as of Q1 FY 2025, with Tier 1 at 15.94% and tier two at 1.7%. Just a quick reminder here that the quarterly profits are not added. So obviously, there is a INR 400 crore lying there which will get added only after auditing of accounts towards the end of the year. This is very healthy from an overall banking perspective, and we were at 18% as of last quarter, and this again is a reflection through our asset growth and the fact that we have been growing the book. So, ladies and gentlemen, this is the introduction from the management side in terms of the overall numbers, and at this juncture, I'd like to hand it over to our host, Sudhan, for any calls and any questions that our investors may have. Thank you all for the time.
Thank you for the participation, and we'll be happy to take on the questions. Sudhan, over to you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone 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 is from the line of Darshan Devra from Invest Group. Please go ahead.
Thank you for the opportunity for asking this question. My first question was regarding slide number 11 of the investor presentation. If I really-
How are you?
Good. How are you?
Good, good. Thank you. Go on, please.
Yeah. If I look at the yield on advances, from Q1 FY 2024, which was 9.95%, it has come down in Q4 of last year to
9.76%, yeah.
Yeah, 9.74% and then 9.52%.
Yeah.
So as we are focusing more and more on our RAM strategy, increasing retail, why is it that the yields or advances is coming down, especially given that the interest rate environment has also been more, I would say, trending upwards rather than downwards?
Darshan, the actual reason for this is two things. One is, it's not the new advances that we are booking in the bank. This is more of the historical book where repricing has happened because of a lot of competitive bids and quotes that our customers are getting from others, including in retail housing loans and so on. Contrary to what we all think in the market, there are players who are definitely offering at much lower levels. And we have historically had a couple of good kind of portfolios with higher levels, but on a very selective basis based on the relationship. We have been giving rate of interest concessions also.
It is not that all of this is due to rate of interest concession, but the blended rate, based on the new advances, plus couple of these ROI concessions that we've been giving in, is what has resulted in this. But having said that, we are very conscious about the NIM, and we are very conscious about the fact that we want to retain our margins. So we believe that this is a trend which will continue until such time there is a reversal in the interest rate cycle that is also expected to happen in due course.
Original estimates were much earlier this financial year, but at this juncture, because of certain overall macro environmental reasons, it could happen a little later, which is a prediction. And we believe that repricing our advances would not happen immediately while repricing of deposits would happen earlier, which is when we will be able to take advantage of that in due course.
Got it. Second question is regarding NIM. Our NIM has actually gone up from 3.3% to 3.54%, and this is obviously despite the yield advances coming down. What explains this? Is it the capital that we raised last quarter?
Partly it is that, partly it is also because of certain-
The tax refund, the interest on the tax refund.
The tax refund, the interest on that, which has also happened.
Can you quantify that? What was the interest on the tax refund?
About INR 80 crores.
INR 80 crores. Okay, got it.
Yeah. It's not significant in the sense that, on the larger scenario, this is not something which is very significant. But yes, that has also contributed.
Got it. I am assuming most of the contribution is actually from the capital raise then, right?
Mostly, yeah. That is a substantial amount, INR 1,500 crores, plus also the fact that we retired INR 720 crores of our tier two, which was at 12%.
Got it. The last question I had was regarding the credit cost guidance for the year. In Q1 we had 0.11%. What do you think we will end the year at?
We are still targeting at closer to about overall 1%. This has been our annualized target. We will be happy if it is a little lesser. I think, we are prepared to digest up to 0.9%-1%.
Got it. Just out of curiosity, in terms of our ROE, what is our target for ROE or guidance for ROE for FY 2025?
We always said that we would be in the 15%-17% range, but for this aberration that happened due to this capital raise. I think we are slowly inching back into the 15%, and I think we'll stay at 15 plus at least for the next one or two quarters.
Got it. Thank you so much, and best of luck.
Thank you, Darshan, for your time.
Thank you. The next question is from the line of Piyush Chadha from Serendip. Please go ahead.
Hi. Thanks for the opportunity. Just looking at your slippages. Almost one-third of the slippages seem to be coming from the restructured book. Close to, I think, INR 140 crores of slippages were from the restructured book. Can you just help us understand when the restructured book slippages would sort of taper off? Is that something that's likely to happen in the next couple of quarters, or this is a pain that will continue?
Piyush, good evening. Just to kind of make sure that the slippages number is correct. Out of the overall additions of INR 416 crores, only about INR 81 crores has come from this restructured book.
Okay.
That is first data point. The second is to answer your question, the retail part of it, which is the restructured assets in multiple forms. The bulk ones have got addressed mostly barring at least about, let's say, about 10 to 20 odd larger accounts, which are still there across various regions. But the real granular part, which is including housing, et cetera, are being restructured and they are coming out of restructured into standard portfolio and so on. There's a special team that we have deployed, which is why this entire overall recovery and all of it is happening. Last point related to the restructure is that, as you are aware, that 91% of our book is collateral-based. So even in this restructured assets, I can confirm that all of them are security-backed. But you are aware about enforcing the security value and so on.
This is something that as a separate team, as I said, led by our credit monitoring team from the headquarters and with SPOCs at every region, they are doing this. And we believe that we would continue with the same trend in terms of a downward trend to a reasonable level in the next two to three quarters.
Okay, thank you so much.
Thank you, Piyush.
Thank you. The next question is from the line of Prabal from Ambit Capital. Please go ahead.
Hi there. My first question was on the provision coverage ratio that has come down by 200 basis points sequentially. How to read that and what is our outlook on that, meaning how quickly we want to take it to 70%?
Prabal, first, there is a change which we have implemented, which is account-level provisioning, which has been a practice for the last couple of quarters. Obviously, we have been doing this at a granular basis. The second part is that, over a period of time, we believe that this accretion in terms of extra provisioning will happen when we get more comfortable on the profitability side. This is a clear balance between PAT and PCR that we are trying to balance, and we are making sure that whatever is as per prudential norm, we are doing this, which are certified by the statutory auditors, and the fact that we want to also reflect the growth of the bank. We want to grow profitably. We want to also be healthy, and this is a balance that we will strike as we go forward.
We believe that our next target to reach as far as PCR is concerned would be the 80% in the next two to three quarters.
In next two to three quarters, you mean a 26% jump, is that correct?
No, I am talking about 77.97% as of this quarter would grow to about, let's say two quarters from now, we should hit 80%.
Got it. Sir, second question was on the GNPA, gross NPA in the retail loans that has gone up from 2%- 4% on a sequential basis. Why is that, and which specific segments are showing pain for us on the retail side?
You are aware that there is a historical book, Prabal, which is pre-COVID, before 2020, and then thereafter, whatever that we have been doing during and after COVID. Then the restructuring happens and over a period of time when the growth was really not there and the last about a year, we have been growing the advances book at closer to 19% or so. The historical book is something that we are working on, obviously, most of this, at least 50% or more from the overall NPA is coming from the historical book, and this will continue. This, of course, does not include the restructured part. As you know, restructured, we have provided for at least up to about 14%, 15% on the overall restructured book.
What we are trying to do is to make sure that we want to completely clean it up as far as the historical book is concerned and make sure that we are more or less on a clean slate as we go forward. The retail book, just to answer your question as to what is the total in terms of the break-up between retail, et cetera. One of the key segments that we do lend to is the contractor segment, which you are aware. In the last year or so, the last quarter of the previous year, we did have a lot of collections and lot of SMA 2s went back to SMA 1 and zero and so on.
But because of the fact that there was a kind of a period which due to the code of conduct, mainly due to the elections et cetera, the payments were not coming through from the government department, which will happen in this quarter and the next quarter. We believe that we would come back to regular normalcy on that segment. The retail book per se, has been doing well. We can't see much as far as the GNPA is concerned there. It is more from the mid-market and the agri and which are predominantly from the historical book.
Got it. And sir, when you say that this is the pre-COVID book that is throwing pain for us, so how long should we expect the pain to continue?
The restructured book has, as I told you, come down to about INR 1,190 odd crores. So it is something which, INR 1,160 crores. So which means that we are in the fag end of that particular cycle. We believe that up to March 2025 this is going to continue, and every quarter we will see some substantial reductions. But there will be a final number which we will arrive at. Whatever that number would be, Prabal, we'll wait and see, and whereby at some point of time as a bank, we need to make sure that this is completely regularized. So this is a trend, but it's a very significant movement that we have achieved from overall. Many other banks did not go through this route of declaring a high amount.
Karnataka Bank took a conservative stand in 2022, 2023, when this was done, where INR 4,500 crore was restructured and classified. From there, we have come down to a very healthy number. At this stage, as a percentage of our gross advances, this number is actually not very significant also, Prabal. And in any case, as I said, 15% has been provided for, and the slippages from this restructured portfolio is on a downward trend.
Got it. Sir, during the quarter, the retail loan books saw a decline on a Q-on-Q basis. By when should we expect this book to start piling for us along with the MSME segment?
We have actually, on the contrary, added. Just to give you an idea, we have added a total of INR 2,454 crores that we had grown on the advances book. Almost 50% came from the retail side. INR 1,187 crores.
But within this, if I exclude agriculture, then the core retail book has come down.
Let me give you the break-up on that separately between Retail, Agri because right now the classification that we have done is basically on Retail, Large Corp and Mid Cap. That is how we have done, but we will be able to publish that.
Okay. Is there any outlook as to when can the retail and MSME business, where we are still in the phase of developing their infrastructure, when can their books start contributing to growth?
Agri, we have already done that, which is by deploying closer to about 100 plus Agricultural Field Officers, AFOs, into the market. We recruited some, and we had to pull out many who were in regular banking in multiple regions. We have focused and got them all to the Agri-focused regions already. So the Agri part of it, which is to create a structure and outreach programs, et cetera, have already started and it is yielding results also. MSME, as you are aware, I think it's already there in the public domain as part of the presentation, that we have recruited a head of retail and MSME business, and he is due to join in about one to two weeks from now. Right now it is being managed internally by our existing leaders.
We made some structural changes where the erstwhile GM credit marketing has taken up the position as a chief compliance officer. This is basically an interim arrangement, and we will have the leadership change happening by end of this month. As soon as he comes, I am sure that he will devise many programs and outreach programs. Mid-corporate head has already come in, and he is more or less completing a quarter. Here again, there will be a churn in the overall book compared to the earlier, where the large corporate opportunistic will degrow and it will be replaced by direct-to-customer lending, which will have a kicker as far as the yield is concerned.
Right. Sir, two data-giving questions. What was the net advances during quarter and outstanding assets?
Net advances during the quarter increase, you are talking about?
No, no, the absolute number on the balance sheet, sir.
Net advances. Do you have them? One second. Just hold on, Prabal.
Yes, sir.
What was your second question? Net advances, and then the second was?
And asset number.
Total asset number is INR 115,770.
INR 115,770 crores is the total asset.
Net advances is INR 73,977 crores.
INR 73,977 crores is the net advances.
Got it, sir. Sir, since we have from the previous quarter, since we have improved the quantum of our disclosures, I would just request if we can also add balance sheet into it. It just sort of gives more perspective as to how ratios are moving forward from next quarter.
Surely. We will include that. Actually, we have taken a lot of feedback from all of you, and we have included everything, whatever that we have heard so far. We will take this on record.
Thanks. Thank you so much. All the best.
Thank you, Prabal. Thank you very much.
Thank you. The next question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Good evening, sir. First of all, thank you for presenting a much, much improved version of the presentation. Hello?
Yes, sir. Good evening, Sarvesh. Thank you so much for that.
Yeah. So really heartening to see these positive changes. Sir, when it comes to your growth rate, now you have also given this vision of reaching INR 1 lakh crore by FY 2026 end. What we are witnessing slightly is that the retail engine is still slightly probably not growing as fast as we had in the past. At the same time, there are pressures on the NIM. How do we make sure that we reach to our target, and what are some of the constraints that you see for us to reach there?
Fundamentally, Sarvesh, what we did was, yes, we had this aspiration and when we started this journey, a couple of us who came into the bank, including our Executive Director, Sekhar Rao, we sat together and said that we should, first of all, outline our aspirations. The aspiration still remains to be that INR 1 lakh crore gross advances by March 2026, and we stay committed to that. Second is that the composition of this, we always said that we would have 50% from the RAM, and then the balance would be from corporate advances, which would also be a churn because the larger corporate advances, which are more opportunistic also would be replaced by direct-to-customer corporate advances. Both these efforts are currently on. Structurally, what we have done is that we have divided this into outreach programs.
Basically, on the retail asset side, we have appointed corporate DSAs. We have also deployed a community across the country and this is a pretty large number which is there, and they are sourcing. We have also embarked on a credit transformation program, which is basically to rationalize the processes, the turnaround times, and also any policy changes related to benchmarking. The first quarter of that credit transformation program in terms of study, collation of data related to all of this, other products offered by banks, et cetera, has been done. We are tweaking a lot both on the product as well as on the process side.
The third is that we are in the process of setting up a retail asset center in a couple of locations whereby this will be one kind of umbrella shop where right from sales, which is the DSP sourcing, application, lodging, and review or scrutiny will be done in record time so that it works more like a factory, and this is what we are trying to set up from a retail asset perspective. On the MSME and the mid-corporate, what we are doing is that we are having a kind of a relationship and a coverage team which will be deployed in multiple areas and the teams are working with our newly joined HR head for making sure that this structure is there as far as the locational coverage is concerned to manage these businesses.
This is a significant change from the past where we had one branch manager who was managing all types of assets and where now the branch head will continue to do what he was doing. But we got the sales team and the coverage team which will be superimposed on a branch structure. As you are aware, in the last quarter we have enhanced the cluster head concept. Instead of breaking the branches into regions, we have introduced the cluster head concept. Now all the branches work under 51 clusters as far as the country is concerned. So overall what we are doing is that we are making this entire organization more effective, more focused on this and based on this, we believe that our goal of this INR 1 lakh crore through this segment that we are talking about would be very clearly achievable.
Understood, sir. And sir, on the credit cost side, so now largely, if my understanding is right, you are saying that the standard restructured book will more or less run down by the end of this year and so your slippages from that particular book will further reduce. I mean because 20%, 25% is anyways coming from that book even now. So that bucket would also go away in a year's time. Is that the right understanding, sir?
Sarvesh, I want to correct that understanding a little bit. I did not say that our restructure book will be completely eliminated or zeroized by end of the year. All that I said that we will reach a far more comfortable position from the INR 1,160 crores to a lesser number. So the restructure book is here to stay, but it will be very controlled and reduced number, one. Because of that, obviously the slippages will be much lesser and lesser as we go forward because the constitution of the restructured book is something that we have already published in our investor presentation where segment wise it is there and plus as I mentioned earlier in the call, this is all fully covered with collaterals. So we will be definitely making some very hard calls as far as recovery or upgradation and standardization is concerned.
Just to kind of conclude on that point, I hope that our communication is very clear on the restructured book. It will come down. Yes, you are right about lesser and lesser contribution to the NPA because of that and that is a very valid point that you raised and I guess that explains your query also.
Understood, sir. Thank you and all the best.
Thank you, Sarvesh Gupta.
Thank you. The next question is from the line of Sushil Choksey from Indus Equity Advisors. Please go ahead.
Yes, Sushil.
Congratulations to Team Karnataka for excellent result. My first question is referring to the previous question which was asked. On aspirational goal, the retained profit and the equity raise substantially supports the credit growth and I am sure in today's market, credit is not an issue. Coming to deposits and CASA, where are we and based on aspiration, have we reached 50%, 70% or we still lacking?
Sushil, good evening. Thank you for your compliments and also your commentary on our asset book and capital raise. Yes, it is contributing definitely and giving us a lot of headroom as far as our advances growth is concerned. On the deposit side, I would say that, one, in addition to the branch-led liability acquisition, we have embarked on a sales team-led acquisition as far as our liability franchise is concerned. Today we have deployed over 300 CASA sales officers across various regions plus feet on street for sourcing and bringing them. As you are aware, unlike an asset where the closure can happen with the retail DSA, DSP, in this case, the bank staff have to go and so they only kind of source but the closure happens with the bank staff.
That is why the 300 odd CASA sales officers who are all on the rolls of the bank are deployed for this specific purpose. The second is that we will double this number as we go forward as we are seeing some good traction in terms of number of accounts that are being opened. Plus the third thing is that most of our new product development which has been done in the last two quarters are all liability based in the sense that if you look at our KBL WISE, which is our senior citizen product, Current Account Purple Privilege, which is our traders and small businesses product, corporate salary savings product and what we are planning to do for students with an educational loan cum a liability account and self-employed professional plus family account concept that we are bringing in, et cetera.
If you look through all of our efforts are going to be focused on this liability acquisition. The second part is that our branches are kicking in terms of the existing customer base. So ETB increase in terms of the wallet share has happened and in fact there is a very healthy mix which is happening, which is essentially from our ETB accounts acquisitions in terms of retail term deposit et cetera is happening. Compared to the market where the overall CASA, other banks have lost CASA, we are not really losing that much and we are really kind of maintaining and we believe that the products and the tax and other liability franchise improvements will result in our overall CASA growth as we grow forward.
Last point, Mr. Sushil, is that government business, we have been increasing this, as I mentioned in the past in the call earlier, and we believe that will also result in a lot of float, both the government tax, custom duty, GST collections, plus the government business to be integration with Karnataka government and a few other states that we are in.
My next question pertains to treasury outlook, and how are we balancing on monetizing treasury because the G-Sec Yields are likely to trade between 7.05 and 7.675 by the later part of the year. How would we balance between treasury and credit growth by utilizing the surplus profits and the pool available out of it?
Sushil, there are two parts to this treasury. As you are aware, the Reserve Bank of India circular on investments, which is like transferring all of our holdings into AFS reserve. This investment, what is being done by Treasury, as you are aware, even if they make money, until the security is sold, we cannot take them into profit. So we have actually created this AFS reserve, which is the opening, the general reserve, which is for the revenue reserve. That is happening. Obviously, Treasury, while they will make profit on the AFS due to MTM, but that doesn't enter P&L. That's one part. The second part is that you're right about treasury yields more or less tapering at the range that you had mentioned.
The fact of the matter is that we are good on liquidity because as a bank, we are still surplus on liquidity, which is why our CD ratio is still at 75%. Plus our treasury also has some surplus liquidity, which they are lending to the market. We believe that there is adequate headroom, both on account of this CD ratio, which we can clearly go up to 80%, plus a good substantial number from our treasury, which can be deployed into corporate assets, which will yield at least a kicker of a minimum, if not 100 basis points, at least a 70- 90 basis points will be the increase as far as earnings are concerned.
We believe that we are on the right track in terms of churning our entire portfolio on the advances side and making very clear, efficient moves as far as our treasury funding and liquidity management is concerned.
What is your target on technically written off accounts or loans which are written off on recovery side?
Currently, our total book, which is INR 2,668 crores is our gross NPA, and our technical write-off book is about INR 2,900 crores. Normally we recover about INR 300 crores in a year, and we believe that we are on the right track as far as that number is concerned. It is actually, we can stretch it also to a higher number as we go forward. We believe that, if you look through this year, last year, we were like INR 340, INR 350 crores or so, and we believe that we can close out the year, hopefully, on the technical write-off recovery itself by about INR 400 crores.
These are various kind of measures that we are doing, primarily with the existing book, existing opportunity, and also the new opportunity that we are embarking on as far as our new to bank customers of Karnataka Bank is concerned, because the sign-ups for new accounts by the day is increasing.
Sir, in your aspiration, cross-sell was a big target. Where are we currently?
Currently, the products are just coming in. As you are aware, the product team got set up only about two quarters ago. There are lots of changes that are being done on the technology infrastructure and the functional side of the technology. Between our digital product and the technology teams, they are really collaborating well and the agile method that they are using for rollout of products, et cetera, we believe that we will be able to add more features very quickly in short time and make sure that our entire product offering, the bouquet, is very attractive to the customers to attract this. Then we will see the cross-sell happening. Currently, we are still doing the traditional way of third-party products to insurance.
We are picking up steam as well as we have seen enough increase as far as our third-party income is concerned on distribution of life and non-life products and third-party products from the broking and demat and your 3-in-1 product. All of those are happening. But we will soon launch a wealth management platform, which will basically provide for a one-stop shop, including advisory by location, whereby we will have wealth advisory, both platform and practicing professionals, to increase the product as well as the cross-sell opportunities for our existing customers.
Sir, to be future ready, do we expect that we increase our provision coverage ratio and the profits are supporting the bank on a very good trajectory?
Yeah, we will be doing that. That's what I think one of the earlier callers had asked the same question, and we believe that by end of the year, we should go back to the 1980s.
Do you estimate that your co-lending portfolio would result with many partnerships, a better yield towards in advance?
It is already happening, but the amounts are right now very small. We have four partnerships which are currently functional and one more which will be launching this quarter itself. So five are in various, let's say, verticals. Some are covering SME, some are covering personal loans, some are covering developmental kind of loans which are more the SHG and JLG and so on. So what we are trying to do is that this is testing both the system as well as the processes and the behavior of the loan until the seasoning happens. So currently, the overall exposure is a couple of hundred INR crore. I don't think that we would be in a position to say that whether they are yielding more.
Yes, of course, rates are better, but it does not have a great impact on the overall number because a couple of hundred crores on the overall portfolio is very insignificant right now. But yes, on a very calibrated basis, we will increase the co-lending portfolio in due course.
Thank you for answering all my questions and best wishes for the year to come.
Thank you, Mr. Sushil. Thank you so much.
Thank you.
Thank you. The next question is from the line of Darshil Jhaveri from Crown Capital. Please go ahead.
Yeah, hi. Good evening, sir. Firstly, congratulations on such a great performance. A lot of my questions have already been answered. Just wanted to ask a bit on the deposit side, are we facing some issues in the market? Is the competition heating up? Will it impact our cost of funds for a longer duration than what we expect?
Sushil, good evening. Thank you so much for asking this question. Sorry, Darshil. This is a market-wide phenomenon. I think every bank from the quarter starting October last year, October, December, and the January-March quarter, and now also has been facing this. This is not unusual for any bank. Every bank is facing this because as you are aware, even the RBI governor talked about it to say that there is a flight of deposits from the banking system into the mutual fund systems. Which is the fact of the matter. But what we do have is that our branch and the relationship that we have are very unique, considering the fact that many of our customers are actually banking with us for generations. So two generations, three generations. So there are a lot of loyalty factors as far as this bank is concerned on the overall relationship value.
Second is that in the past, we did not have all the products to gain a primary position with our customer base, and which we are slowly inching to do because now we are not just staying competitive on the product side, we are actually exceeding in terms of the features and benchmarking with others in the competition. Third is that we are not in the high-cost deposits or that kind of competition because there are players in the market who are quoting rates which are unviable and we are not in that market. Also, we are being extra careful as far as our overall number is concerned, as far as our rates of interest is concerned on short or medium-term deposits. Given that fact, it is a balancing act between liquidity, pricing, as well as long-term stability stickiness.
We are focusing more on long-term stability and stickiness compared to a short-term cost of deposits game that some banks are playing. I don't want to name who. Essentially, we are taking a very prudent approach. We believe that in due course, this would be a winner compared to most other opportunities which the market will present. The basics here is what we are practicing. We really believe that basics will give us a better play.
Fair enough, sir. Just wanted to ask, what kind of growth in deposit and advances can we expect for FY 2025?
We are growing our advances book about 19%, which will continue for this year and deposits we have grown between 13%-15%, and we believe that we will stay in the same trajectory.
Okay. Fair enough, sir. Yeah, that's it from my side, sir. All the best, sir. Thank you.
Thank you so much for your time.
Thank you. The next question is from the line of Ketan Athavale from Robo Capital. Please go ahead.
Hello, sir. Thank you for the opportunity. I wanted credit cost guidance for FY 2026 and FY 2027 and your outlook on other income.
Thank you for your questions. Two things. The outlook for FY 2025 on credit cost would be about 0.9 - 100 basis points, and that will continue. It's a little premature for us to talk about FY 2026, 2027 because the dimension of this entire book, complexion of this book is changing and which is something that we are making changes and impact of this will be felt in the following couple of quarters. I believe that if we control our slippages and if we believe that our overall accretion growth and deposit happens, then we would be in a better position as far as our credit cost is concerned because credit cost is clearly a function of what I just said related to both the reduction in slippages and the growth in net advances. This is where we are focusing.
If you believe that we are really working towards the INR 1 lakh crore book by FY 2026, then with reduction in the overall slippages, which is showing the right trend right now, we believe that we would come to a little healthy level. The second point that you wanted to know, which is about the-
Assets.
Assets, yeah. I think I answered that already, that our overall book is going to be about INR 1 lakh crores, and deposit growth would have to be supplementing that because, if we have to give advances, then liquidity has to come from deposit because we are not in the market to borrow from the market and lend to customers. Obviously, we have maintained a very stable book for the last 100 years. We will continue to do so for the next century also.
Sir, just if you can give your outlook on other income actually.
Other income. Yeah, sorry, that was your other question. Yeah. Other income constitutes commission, then your credit processing fee, then income from services like ATM, debit card, locker, and so on so forth. Recovery from technical write-off is also part of the overall other income. Our other income currently is about INR 275 crores for this quarter, and which we believe that, there is a good potential to grow because there are two, three areas which are more liquidity-based and also a couple of products which will be more on the foreign exchange side, the Forex side, because couple of our MSME or SME customers do not avail of foreign exchange or any other trade transactions with us. We are going to increase traction related to offering more products for our corporate mid-market and SME customers and MSME customers.
And the usage on digital transactions, usage on ATM and debit card transactions, usage on lockers, rental recoveries, et cetera, are going up. We believe that, over a period of time, this other income, which is currently around INR 300 odd crore, would grow. Having said that, there was a very significant part of this other income, which was from treasury, which, as I mentioned in the earlier part of this call, Reserve Bank of India has come out with a guideline where we have to keep it as part of AFS and a revenue reserve. That would not come into the other income, so which would be the case with every bank. It's not only that Karnataka Bank is only affected or impacted due to this. This is a prudent accounting policy change recommended by Reserve Bank, which we have implemented.
Actually, earlier.
I have already mentioned that as part of the overall call that, if we had included that, our other income would have increased by INR 33 crore. But that is not the case. So, without treasury also, we believe that there are other revenues, as I told you, which is trade, Forex, debit card, locker, and digital products, third-party products, which will be distribution products. All of that will contribute. We believe that we are on a healthy trend as far as that is concerned.
Okay. Thank you.
Thank you so much for your call.
Thank you. Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to Mr. Srikrishnan Harihara for closing comments.
Well, Sudhan, thank you for hosting this on behalf of Karnataka Bank. On behalf of the bank management who is sitting with me and those who are on the call outside, we would like to thank the investors for their support, the customers for their loyalty and patience with Karnataka Bank, and more importantly, in terms of guidance, whatever that we are committing, we will continue to deliver. We are on the right track. Trajectory is looking good. Overall, I think, the fact that we raised capital last year and making sure that all the execution of the vision and the strategies that we have derived for ourselves are coming into fruition, and we believe that we will be able to contribute significantly to our stakeholders as we go forward. Once again, thank you all for participating today.
On behalf of Karnataka Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.