Ladies and gentlemen, good day and welcome to Q4 FY 2024 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 H., Managing Director and CEO from Karnataka Bank. Thank you and over to you, sir.
Thank you so much, Ziko, and good evening, ladies and gentlemen. This is Srikrishnan, MD, CEO of Karnataka Bank. I am joined here by Sekhar Rao, who is our Executive Director; CFO Abhishek Bagchi; COO Balachandra; and Chief Business Officer Gokuldas Pai. Welcome to this Karnataka Bank Q4 FY 2024 annual results and Q4 call. We have had an excellent financial year with growth registered across all the key metrics. As I have mentioned in the last couple of quarters, the key metrics that are critical to us that will define the bank's performance for the entire financial year would be growth in advances, aggregate deposits, improvement in quality of our advances book, favorable ROE and ROA for the stakeholders. And we are glad to present that we are on the right growth path as we are moving forward.
I am also pleased to announce that we completed our capital raising program, an ambitious program of INR 1,500 crores in a record six months' time, and this was concluded prior to the financial year ending March 31, and this is by way of preferential allotment of INR 900 crores and a INR 600- crore QIP, which was very overwhelmingly subscribed. And we have had some very good quality institutional investors in the bank. We also had the opportunity to do the call option on Tier 2 bonds, and we exercised this in the entire financial year between November and February, totaling INR 720 crores, which was at a coupon of 12% interest rate. So it was very beneficial as we will go forward with this benefit, when we start this new year.
Brief comments on the numbers which have already been uploaded to the website, the stock exchange, as well as our own website, which is the investor presentation. We have had the highest business turnover in the history of the bank. We have crossed INR 1,071,000 crores. We are up by 15% on a year-on-year basis from March 2023. Our profit after tax, PAT, has been an all-time high again, INR 1,306.29 crores as against INR 1,180.24 crores in last year, an increase of 11%.
This is also to record that during the last quarter, we have had a one-time provision, which is basically the actuarial provision for long-term retirement benefits due to the revision in the 12th bipartite wage revision agreement that was amounting to INR 152 crores. This is a one-time, it is not a recurring issue. The other thing was we celebrated our centenary year in February, a couple of months ago. During the centenary year, a lot of celebration at our branches and regions. This was again, a one-time expense of about INR 11 crores. If we total this up, our total one-time expense, which is not going to recur, is INR 163 crores.
The bank recorded a profit of INR 274 crores after taking into account this one-time expenses of INR 163 crores, which would have been higher. INR 274 crores + INR 163 crores is what we need to really count in terms of the running rate as far as the bank is concerned. This is by far very encouraging as far as our entire growth path is concerned. The good part is about the key metrics that I am going to call out right now. One is about gross advances. Our advances book grew by closer to 20%, 19%+ . Our gross advances as of March 31, 2024, stood at INR 73,001.66 as against the last year of INR 61,302.78, recording, as I said, a 19%+ growth.
This is much more than the market, is ahead of the market. The market is believably growing at about 15%-16%. This is good news in terms of making sure that we are growing our overall book. Our aggregate deposit to support the growth in the advances also grew very well. We closed the year with INR 98,058 crores as on March 2024, as against INR 87,368 crores, a jump which is again at about closer to 12%. This is again, with a very good ratio of CASA, which stood at about 32% of the aggregate deposits.
Between the retail term deposits and the retail CASA and the overall corporate deposits that we have had, which is actually very minimum, we have been growing this book very well. All the branches are kicking in, and it has been an all-round growth in terms of our deposits as well as advances. I will also talk about the constitution of each of this. Because of this healthy growth, our CD ratio has been enhanced to 75%. It is a continuously improving ratio and quarter-on-quarter, over the last financial year, we have been growing in this area. The good news is also on the stressed assets. The net NPA has improved to 1.58% from 1.7% in March, and gross NPA has improved to 3.53% from 3.74%. This is not all.
The gross slippages has come down to 2.8%, which is a major improvement from the last financial year, which was standing at 3.31%. The overall standard restructured advances and also the GNPA, if we total it up, and this is without the related accounts, our gross advances number compared to March 2022 was 9.51% as a percentage of GNPA plus restructured. As of March 2023, it was 7.14%. As of March 2024, we have come down to 5.31%. This is a very healthy trend as far as Karnataka Bank is concerned because all the concerns that we had about the historical book are more or less coming under control. But there is still some way to go, which we are working very hard. We will make sure that we are on the right trajectory as far as this ratio is concerned. We had a good recovery year.
We recovered almost INR 277 crores, and this is more or less in line with what was happening the last year also. This is again a reflection of the fact that the collateral-based lending that Karnataka Bank has done has yielded results even when it came to recoveries. Our PCR, the provision coverage ratio, is standing at 79% and at similar level compared to the last year. So we maintained the same . The core provisions without technical write-off stands at about 56%. It is improved by 100 basis points compared to March FY 2023. Our NII stood at INR 834 crores for the last quarter. It is marginally increased . Our NIM, which is a more important metric, we stand at about 3.51%, which is in line with the guidance that we have given of 3.5%-3.7%.
Now, despite the increase in cost of deposits across the banking industry for the last two quarters, obviously that has put a pressure on NIM. We are happy to report that our loan yields have continued to be at the same level at 9.9%. So the NIM, which has met a couple of dips, has really not been impacted because it has been more out of the cost of funds, which has increased from 4.74% to about 5.40% in March 2024. Now, we have launched a lot of initiatives to gain the benefit of CASA. We are a bank which can collect direct taxes, which can collect GST and also Customs duty. And we have also inducted a whole lot of over 650 sales officers with feet on the street for covering key markets and target segments.
The strong retail franchise of over 935 branches in Karnataka and across the country have definitely provided access to low-cost deposits. We are not in the bulk deposit market. That again is a reflection that all our term deposits, 90%+ are lesser than INR 2 crores, which is again a good metric to have. And we are by far comfortable on this. Our credit cost has improved to 0.84% compared to our 1.48% last year. And again, here, this is a reflection of the fact that our overall efficiencies have increased and our cost of delivery has also kind of impacted positively. Our cost-to-income ratio, I had reported this in a couple of quarters ever since we took charge, saying that there will be a temporary increase, which has been reflected.
It has increased to 53%, but as guidance for this financial year, by the end of this financial year, four quarters from now, we should see sub- 50% or closer to 50%, which again would be due to a lot of rationalization, a lot of digitized processes. We make sure that our cost is under control. This is a temporary blip, which is primarily due to recruitment of people, investment into technology platforms and infrastructure. Our ROE is very healthy. Despite an increase of INR 1,500 crores of base, we are about 13.71%, obviously lesser than the last year, 15.42%. But again, this will improve as this is a one-time impact due to this capital raise that has happened over the last quarter of the financial year. The ROA has been maintained at about 1.22%. Our guidance has been 1.2%- 1.4%. We are sticking to that guidance.
This is again good news as far as the investors and the stakeholders are concerned. The capital adequacy ratio stands at 18% with a break-up of 16.17% in Tier 1 and 1.83% in Tier 2. This is again, very clearly reflected due to our capital raise. It is a substantial improvement, giving us good headroom as far as the growth is concerned. The capital that we have raised will be used for funding growth in the book via advances because of the fact that we need to be maintaining a very healthy capital adequacy ratio. Then, rest of it is going to be primarily for investments into digital technology and all of the infrastructure, along with the people that are required for repositioning this bank.
As you are aware, we launched a campaign in the last quarter coinciding with our centenary year to reposition our bank as Aap Ka Karnataka Bank, Bharat Ka Karnataka Bank. This is something where, despite the fact that we have two-thirds of our branches in Karnataka and the interior locations in Karnataka, we are very well covered nationally with 22 states and two union territories being represented. These are all mainly urban branches. We believe that in the next couple of quarters and years, we would actually have a 50/50 mix between Karnataka and non-Karnataka business. On this note, I would like to conclude the initial commentary and introduction from the bank related to the results, and would request our coordinator to pass on any questions, calls, that would already have got queued. Thank you once again for joining, and over to you, Ziko.
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 the 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 when 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 Sandeep, who is an investor. Please go ahead.
Good evening, Sandeep.
Sir, good evening. Thanks for the excellent results and thanks for your leadership. I really appreciate the way you are taking Karnataka Bank forward. Sir, my question is with regard to the celebrations of 100 years. Why did you not give your investors a chance to celebrate with a bonus, sir?
Sandeep, we have considered this, and we are also happy to announce that the board has recommended a dividend of 55% today. This will be recommended to the shareholders for approval. This is much more than the 50% which was declared last year. This is on the higher capital base that we have actually enhanced now. This is indeed a way to celebrate with our retail shareholders and along with the other new shareholders, the institutions who have come in. This is the first gesture from our side related to 55% dividend today.
Thank you, sir. Just one more question in terms of the net NPAs. You did mention that it has come down to 1.53%. Is that correct?
Yes, please.
Sir, in terms of recovery, are there any large recoveries expected in the next two quarters?
What we have done, just to correct you, it is 1.58% on the net NPA. As you are aware, about 35% of our entire book is, on the NPA book I am talking about, is covered with collateral. Sorry, 75% is covered with collateral. As a result, the recoverability is very high when it comes to this. In terms of some of the larger recoveries, the last year we had sold to a couple of ARCs and we had also done many one-time settlements, which was in excess of INR 50 crores and INR 70 crores and so on. Our average ticket size in terms of either OTS or recoveries or whatever, as the sweet spot has always been up to INR 50 crores and granular. The data related to this is being uploaded in our website along with our investor presentation.
Thank you. I think the participant has dropped out, sir. Maybe go to the next question.
Yes, please.
The next question is from the line of Darshan Deora from Indvest Group. Please go ahead.
Thank you for the opportunity and great set of results. Just wanted to get some more color on the NIM. I see that our NIM has changed a little bit downwards between Q3 and Q4. Just want to also get your guidance for FY 2025 on the NIMs.
Darshan, good evening. Just to kind of reiterate, there are two parts, which is our overall loan yield as well as our cost of funds. Cost of funds, because of the lack of liquidity in the market, as you are aware, and there are lots of these bulk deposits and flight into other opportunities on investment because of the interest rate scenario. The bank deposits, it's not only us, but across the banking system has been under pressure. So our cost of funds was no exception. It has moved up as well as our overall cost of funds, but it is under control at 5.33%-5.40%. That's one. Secondly, the good news is that our loan yield has not come down. We were always at the 9.9%- 9.99% in the last couple of quarters.
So even in this scenario, we believe that we have done well as far as the loan yield is concerned. Going forward, the constitution of our gross advances, there is going to be a lot more focus on retail, which is obviously high yielding compared to what otherwise was done. Also, our focus on RAM, which is retail, agri, and MSME. Again, all the three will continue to have the same ratio, along with SME. This constitutes almost two-thirds of our book. We have been definitely firing all our engines, which is the region, the clusters, and the branches. So we believe that we will continue to grow and the NIM will continue to be at the same 3.5%-3.7% range, Darshan.
Got it. And obviously, congratulations on the loan growth. I mean, 19% is a very enviable number, and it is completely in line with what you had said at the start of the year. Most of this growth has come from which sector, though? Is it more from retail? Is it more from big corporate or large corporate?
So we have maintained the ratio more or less at the same level, Darshan. So about 46% of our book is basically retail and agri. Another, about closer to 20% has been the SME and mid-size corporates. About a third of our book is large corporates. Again, this large corporates, we have institutions as well as corporates who are banking with us. But going forward, the growth will continue to be more or less at the same kind of mix. But having said that, the retail growth and the MSME growth is something which is looking more promising. We also believe that there will be some substitution in the large corporate deposit where it has been more opportunistic lending because of the fact that our CD ratio had some headroom.
We would probably replace that with mid-size corporate lending and would also have the opportunity to throw multiple products. That would have a positive impact on the ROA. So the churn will be there more at the large corporate end, and the rest of the three major focus sectors, RAM sectors, would continue to grow. So our growth path is to continue the same way at about 18%-20%, which has been the stated objective. So we believe that somewhere between the 18% growth, we would be anywhere closer to about INR 90,000 crores as of the year-end FY 2025, exit FY 2025.
That's great to hear, sir. One last question on the CD ratio. We have slowly inched our way towards 75% rising every quarter. Have you sort of reached the optimum level, or can we also aim for maybe something along the lines of 80%? Especially given that we have ambitious targets for advanced growth and the deposit environment still seems to be a little bit challenging.
Our deposits engine has started firing well. In fact, we are monitoring this across all our 14 regions on a daily basis. Accretion has been very healthy. Given that, we believe that the 75% is good, but we do have headroom. Technically, we can go up to about 80% also. That 80%, it is not a stretch at all. It will be very comfortable. There is also the deposits engine, which is funding the growth on advances. There's a very calibrated growth on both sides.
Great, sir. One last suggestion. Point taken about the one-time expenses. It would be great if in the future you could incorporate a slide where you sort of give us the pro forma financials and the ROA, ROE numbers excluding the one-time expenses. Just as an analyst, it becomes a lot easier for us to have that data. Just a suggestion.
Point taken. In fact, this time even in our investor presentation, we have called it out very clearly in the slides. But yes, we have not done a scenario which is with and without, because technically, we will check it out. Yes, point taken. With analysts, we are explaining this, and this is one of non-recurring expense, as I mentioned earlier. This is due to the wage settlement and actuarial provisioning that has been made. We could have done it in multiple quarters like many other banks, but we thought that it is prudent to have this done because we have done well in terms of our strong financials. We thought that it would be prudent to do it in this quarter itself.
Thank you, sir, and best of luck for the year ahead.
Thank you, Darshan.
Thank you. The next question is from the line of Prakriti Banka from HSBC Mutual Fund. Please go ahead.
Good evening, Prakriti.
Hi. Good evening. I would just request you to publish your results and give us enough time in the future to sort of go before we come for the call so that it is more fruitful for you and for us as well.
Point taken, ma'am. Surely. Prakriti, you can always reach out to us.
Sure. It is just that right now I am on the road. The question is just probably going to be something that I could have gotten out of the presentation as well. So it is just a better use of all our time.
I understand.
Just quickly, I will probably join back once I have had a chance to go through the numbers better. But within retail, what are the segments that are driving your growth?
Within retail, on the asset side, primarily this has been gold loan and housing loan. These are two flagship products which have resulted in a good growth rate. Middle markets, which is comprising of MSME, also has been kicking in well. So the ratios, if you really look through, these are the three main sectors which have contributed to the growth on the asset side. On the deposit side, 90% of our deposits are INR 2 crores and lesser. So this is something which we believe is very healthy. And one more product that the bank is looking at, s ince we do not have a credit card product from the retail assets. As you are aware that 90% of our book has been collateral-based on the advances side.
So for the first time, the board has approved a policy for unsecured, and this will be primarily driven by the credit line on UPI as a product. We are e ngaged with one of the leaders in this space, a large fintech NBFC. We believe that with that will be the beginning of our launching of a retail asset program, including unsecured.
Got it. MSME growth, how much did you say that was? You were also in the process of revamping your risk assessment, et cetera, of MSME, right? Maybe what I thought that was going to be coming a little later. Are we ready with that right now?
No. That is still WIP. The growth in terms of the overall MSME business has been about 18%-20% so far. Our investor presentation has the sector-wise growth in terms of both advances and asset quality, which is again, for the first time, we have divided that by sector in both the cases. So that will give you an idea. But just to call out now, MSME is about 24.7%, retail is about 24.4%, and agri is about 13%. So if you total these three, we are closer to 63%, as I said. And if you add the SMEs, it is a little more. That leaves only the larger corporates and the others, NBFC.
Got it. Also, just this mix, the main drivers that you mentioned in retail, are these going to be the main drivers? Because, I mean, housing, from what I understand, what is the competitive scenario like? Would that be not, let's say, yield dilutive from where you are right now?
We are approaching this in a slightly different way, this entire season. What we are trying to do, we have a lot of builder relationships in the key cities. Particularly in Bangalore, Mangalore, Chennai, and a couple of other places, we have this huge builder tie-ups. Construction level financing, which leads retail into housing loans and construction financing in the commercial side, which will lead us into an LRD product. It's something that is being promoted at the branch level.
So between Sekhar and I, we have been going to all the regions and doing reviews with the branch heads. T hat level of granularity is what we are doing ourselves. We are promoting these relationships as well as the business, which will be like package so that we have a continuous relationship, not just ending with a construction loan, but which will gradually become a longer-term relationship with multiple counterparties associated with that. Just to give you the sector-wise on this credit portfolio also, as I was saying, even on the quantum, retail up to INR 7.5 crores is almost like 67% of our portfolio within retail, and INR 7.5 crores - INR 100 crores is the balance, which is the 33%, which is comprising of the micro, mid- corporate and the SME levels.
Got it. Thanks so much. I will get back in the queue.
Prakriti, thank you so much.
Thank you. Ladies and gentlemen, the next question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Hi, Sarvesh. Good evening.
Good evening, sir. Sir, again, as a suggestion, it would be great if you can follow the best practices of some other peer bank like Federal, et cetera, for presenting this because, A, there is no time which is given for the analyst to understand what has come in the presentation. There is hardly any time between the dispersal of the result and the analyst call. B, barring one slide, sir, all the other slides are pertaining to financial year. So we are not able to make out what has happened in the quarter. It is more like a financial year presentation.
Sarvesh, point noted, and apologies on this. This is a day which was very important from a board perspective because we handled many more other progressive and very developmental kind of agenda items. Yes, we will give you more time, and we will ensure that this is not repeated again.
Yes, sir. Thank you so much.
We are available for any calls later on if you do want to ask questions after looking at our investor PPT, which has been uploaded into our website. We are happy to answer calls later. You can reach out to us.
Okay, sir. Sir, on the questions part, last financial year in 4Q, we had shown a degrowth because we had gone on a strategy to increase our retail mix.
Correct.
This year overall, if I see the mix has actually gone again in the favor of large corporates. We have also seen a steep decline in the NIMs. This is something which is slightly contrary to our understanding of the bank's strategy.
I think that if you look through our growth in the advances portfolio, it is not what you are saying . Our growth in retail on enhanced book of closer to INR 13,000 crores, i f we have maintained the same mix of business at two-thirds coming from retail and MSME and agri. We believe that we have done well because we have not gone into the corporate side. That is one. The second is the large corporates. Out of that, there is a portion which is very, let us say, high-end PSU, opportunistic treasury kind of lending. There is a portion which is the longer-term corporate lending, but without products. This is where we are going to do a turn as a strategy this year to develop a mid-size corporate business.
We have recruited a mid-size corporate wholesale banking head, he comes from DBS Bank and Standard Chartered Bank. He was running the business in those banks. We believe that the relationships , along with him and the bank , we will be able to focus and grow that. So between the growth that we have already demonstrated this year, last year, just to kind of call it out, there was a very clear decision to get out of very high-cost deposits and in the process to kind of get some of these loans repaid. This has not happened this year. So deposit is growing in excess of whatever that liquidity which we have deployed is what we are doing this. These are all short-term loans which are more market rate-based. The last point which you asked about was NIM.
For a growing bank and for a bank which is embarked on a transformation journey like us, we believe that anywhere 3.5%- 3.7% is a very good kind of a range. We have actually exceeded that range to be about 3.51%. The last year was different because it was a limited size book. But in the enhanced book, and despite the huge pressure on NIMs across all banks on deposits, because this is actually deposits which has impacted us and not the loan yield, as I said earlier. So we believe that we should be able to take this even better because even if deposits and the interest rates are not very favorable, we believe that the growth in retail would give us a kicker on the yield and would improve this current loan yield from 9.9% to probably a little more.
We believe that maintaining NIM and growing this within the range that we have guided, which is 3.5%- 3.7%, is possible and this is good for us from our perspective.
Sir, what sort of growth guidance will you be factoring in? Because this time we have got 19%, but that is on the back of 4Q 2023, which was a degrowth quarter. So going forward, what sort of advances growth rate are you penciling in?
We are targeting, technically anywhere between 20%- 21%, as far as the growth in advances is concerned. This is on the book, which is at INR 73,000 crores . We believe that anywhere between INR 15,000 crores-INR 16,000 crores more if we add, we are growing much ahead of the market. This was my stated objective when I took charge, saying that three years which was way back in June 2023, before we even settled down in the bank, I said that we should be looking at the INR 100,000 crore advances book exit March 2026. I think we are sticking to that, and we are very well on track as far as the run rate is concerned.
Sir, on cost-to-income now, if I adjust this INR 153 crores + INR 11 crores, then we are already at a 50% cost-to-income. So last year, we had also sort of put in a lot more resources to sort of increase the retail mix and all. So going forward, are you expecting any sort of benefits flowing in from the cost-to-income going down from this 50% that is there in FY 2024?
There are two parts to this. One is that we have to limit our costs, and the second is to increase our income. Both are the strategies that we are adopting. So the cost part of it, over the last 8 months - 10 months, we have brought in lateral leadership teams. We have a new CIO, we have a new chief product officer, we have a new wholesale and a mid-size corporate business head. We have a IR and a partnership head. We have all such very specialist kind of recruitments already done. The second is that our baseline technology we have added. So we have embarked on a project which is to make sure that our entire digitized platforms, our analytics-driven platforms are all fully in swing.
Basic investment, baseline investments related to that . The architectural part to scale up in terms of volumes, reliability and scalability has also been done from a technology perspective. Last one is that we were focusing a lot on process. There are a lot of process improvements that have been done, including centralization. We are setting up a national back office in Mangalore, and we believe that that would result in a lot of cost efficiencies as well as operational efficiencies by releasing bandwidth at the branches for doing more sales. Last part is about investment into people sales teams. As you are aware, we are a bank where the feet on street and the sales team have low fixed costs and higher variable costs. We have rolled out a variable pay program, which is based on performance, basically increasing in business even at a branch level.
Over and above the pay scales that are currently there, whether they are IBA- based or whatever, we still have this variable pay program which we have launched, which are linked to targets and which are linked to performances. This includes group targets, which is the branch target also. We want to make sure that all of the distribution outlets that we have are all meeting targets and actually becoming more and more productive. The last one year, we have made sure that the contribution, which is the business contribution volume by employee, has improved significantly, and we want to increase that even further.
Sir, are you expecting this 50% to go down materially this financial year?
Earlier this was asked by someone, I had also committed saying that we will bring this cost-to-income closer to sub- 50% by the end of this financial year, FY 2025.
And sir, finally our credit cost has come at 0.8% odd . How do you see that playing out in the coming year? What would be the gross credit cost, and have you seen a lot of recoveries this year, which has helped on this partially, or how do you see it coming?
Banking industry works around 1%. Obviously, we have done well this year, but we believe that even anywhere up to 1% is good. But we do have a good recovery rate even now as I speak to you because this is working very well because the overall GNPA numbers, the slippages have come down and recoveries have been very, very healthy. We believe that this quarter and the following quarters this year also, we would have some healthy recoveries which would have impact. I guess we would be hovering around between 0.85 basis points - 100 basis points.
Understood, sir. Thanks a lot and all the best for the coming quarters.
Thank you so much.
Thank you. The next question is from the line of Sushil Choksey from Indus Equity Advisors. Please go ahead.
Good evening, Sushil sir.
Good evening. Congratulations to Team Karnataka for having an excellent year in terms of fundraise and various aspirations. The first question you answered to the first questioner about your aspirational growth to INR 90,000 crores - INR 1 lakh crore between 2025 and 2026. To sustain that kind of credit growth, how are we working towards human resource and deposit mobilization?
Thank you, sir, for the compliments. Yes, this is the next phase of growth. Basically what we have done is that we have set up the baseline in terms of setting ourselves up for growth in the advances as well as for the deposit side. There are three parts as far as the deposit is concerned. One is that there is a franchise which is through the branches. The second is through the sales teams because we have created a sales organization. The third is that for our existing-to-bank, ETBs, we have a data-driven analytics platform, which gives a lead generation on the basis of behavioral, transactional behavior of each of our clients. This has kicked in very well.
On a regular basis from the back end, from the analytics center of excellence, we are pumping in data to say that who are our target for FDs, who are our target for third-party products like insurance, who are our targets for converting dormant account into an active account, and so on. Basically, this has been on the deposit side. As far as the loan engine is concerned, we have very clearly done some verticals. We have also got it in the investor presentation. We have already made an offer to our retail asset and MSME business head, he is joining us shortly. We already have our mid-size corporate business head who has been in the system for about last 25 days.
We already have started a lot of process transformation, specifically on the credit processes, by deploying one of our world-class Singapore-based agency who have got a lot of banking experience in India. They are all professional risk and credit managers who have been in larger banks. This is a 12-month project. Between the new people coming in, the coverage team, between strengthening credit sanctions and credit processes through this transformational study and also the technology which I called out for on the deposit side, we believe that we have the capital, we have strengthened the key management and the creation of the sales and the customer-centric organization. We have increased our product range.
We have launched 18 new products in this financial year, and these are all CASA. Some more are coming in as I was telling the earlier caller about something on the retail asset side also. This is going to be a continuous process for both the retail and the MSME advances and on the deposit engine, sir.
What is the sustainable employee cost? Because this year, I suppose IBA would have impacted in the annual payout. What is our sustainable employee cost on a year-on-year basis?
Last year, if you look through, we have accounted for it. Ever since November 2022, we have been providing for this, and it is something which has already been boxed there. The second thing was that because of the pay scales which were announced just now, we had to do actuarial provisioning for increase in leave, increase in the pension, increase in a couple of other retirement benefits and so on, which is the one- time that we have incurred.
What is the number on one- time?
The number on one- time is INR 152 crores on just this actuarial provisioning in this quarter. The running rate as of March 2024, our overall staff, which is including salary plus superannuation benefits is closer to INR 1,372 crores. If you want to know the number, it will be anywhere between INR 1,300 crores- INR 1,400 crores on the overall number.
To the previous questioner, you spoke about financing home loans and construction loans and LRD. Are you targeting more of an affordable segment for a higher yield, or are we going to do normal home loan products like any other bank?
We will do both, sir. We want to consolidate in markets where we are present. As I was mentioning earlier, Bangalore, we have over 100 branches. Obviously, we want to take advantage of that, and we are trying to set up a retail digital factory there, which will basically be the unified kind of a retail hub. If we succeed here, then we would want to kind of replicate it in major Tier 2, Tier 3 locations also because this is the way that the retail business is going, and that is where the process transformation part happens. Affordable housing, we have been funding directly to a couple of NBFCs, and if we believe that we could get into some kind of strategic arrangement based on our experience, we would definitely be considering that also.
What kind of TAT are we targeting in this segment?
Sorry, repeat your question.
What kind of TAT are we targeting on the segment of housing loans, gold loans? Gold loans is less than few hours, but then a housing loan or a consumer loan.
What we're trying to do is that if we have this builder tie-ups, which is what we are aiming, then the whole project gets approved. Then other than your Aadhaar and your income verification with the individual, we do not have to repeat anything related to that documentation and approval. We believe that we would want to get into a T+1 TAT as far as the housing loan is concerned on this kind of pre-approved projects.
Sir, the entire banking industry is benefited by RBI dividend and our inclusion in the bond index, JPMorgan Bloomberg. What is comforting Karnataka Bank treasury on outlook for the current year? Will we monetize our treasury for gains and look for more credit growth by booking profit if we get INR 675-INR 685 range?
Sekhar is here, our Executive Director. He will take on this question. He is actively involved in managing treasury. From an overall perspective, let me tell you that we are managing about close to INR 26,000 crores- INR 30,000 crores treasury book, and that is not small. Secondly, we do have positions which are very favorable if the interest rate movement also becomes favorable. At any point of time, opportunity-wise, we will definitely encash. Sekhar, would you be able to add on this?
Just on the RBI, there could be some near-term impact, and we will ride the wave on that. As would happen to most banks, there could be some positive impact. We will not miss the opportunity there. Only slightly midterm to long-term, there are a couple of events.
Of course, the big one being the election results, then the U.S. elections as well. The guidance on, what do you call, reference rates. We are watching it closely, but we see that over the year, all other things considered, there could be some favorable rate movements. Accordingly, we will calibrate our treasury of strategy as well.
Thank you.
Thank you for answering my question, Sekhar. My last question to Sri. Your strategy in last 12 months has worked towards equity raise. Your aspiration goal of INR 1 lakh crore advances by FY 2026. Based on your calculation between retained profit and the current equity, other than Tier 1 and Tier 2 bonds, would you raise equity in next 24 months or there is no equity required?
To our INR 90,000 crores- INR 1 lakh crore target because, as you know, we have repaid INR 720 crores of Tier 2. At any point of time, if our capital adequacy is challenged, if interest rates are favorable and our bank growth reflects in better credit rating for us, we will be able to get some funds at reasonable cost. We believe that cost of funding, because equity we have done already, and we believe that the next round could be a Tier 2, and with that we will be able to manage very clearly up to this INR 1 lakh crore.
Congratulations, and best wishes for years to come.
Thank you so much, sir. Have a good evening.
Thank you. The next question is from the line of Prabal from Ambit Capital. Please go ahead.
Good evening, Prabal .
Mr. Prabal, your line has been unmuted. May I request you to go ahead with your question?
Am I audible?
Yes, sir. May I request you to use your handset, please?
Yes. Is this better now?
Yes, Prabal, good evening.
Good evening, sir. First question is on the movement of NPA. If you can highlight slippages, recovery and write-off for the quarter.
Here you go. As far as our entire stressed asset is concerned, the net NPA has come down. I will call out some numbers so that you will be more comfortable. Our total NPA as of March 2024 was INR 2,578 crores. Without related accounts, our restructured assets has come down to INR 1,295 crores. If you look through this as a percentage of gross advances, this is about 5.31%, which is comfortable, because for NPA, we would have provided for at least up to 65% or sometimes more, depending on the weightages. On the restructured book, we would have a provision of about 15%. That is why the coverage, the PCR is also intact. Second is that there is a technical write-off book and there is also a recovery.
Recovery from existing NPAs, even if it is half and half, we believe that this would contribute to the overall metrics as we go forward because on an average, we have been recovering at least about INR 300 crores or so. The third is that in terms of, let us say, the historical assets and the new assets. The new assets that we have put in place a lot of credit monitoring mechanisms, and we believe that the new book that we have is pretty healthy. We have also got the earlier book under control because at some point of time, if you are aware, the b ank, we were staring at about INR 4,500 crores of restructured book and which has come down to less than one-third. We have done well as far as the overall quality is concerned.
Now, the second part to your question is related to how would it look going forward. I guess that we want to get the GNPA to about 3% and NNPA to closer to 1%-1.2%. This is how it will play out as we go forward.
What was the slippage during the quarter?
I think it was 2.88%.
In absolute amounts.
In absolute amounts. Just hold on. Let me ask my CFO. You go on with your next question. He will be pulling out the data. Slippage is actually-
Last quarter, we had some issues with the restructured book which shows slippages of INR 210 crores. How is the trend this quarter, and how do you see that going ahead?
As I was telling you that with related accounts, our total restructured book has come down to INR 1,580 crores. Without related accounts, it has come down to INR 1,295 crore. I think the better part of that restructured book management has happened already, and whatever is left, we are having adequate collateral. That is something which is not an issue. In terms of the slippages, just to kind of give you the overall number, INR 527.58 crores is the position as of March 2024.
For the quarter?
For the quarter. And INR 1,650.20 crores is for the full year, entire year, as against INR 1,836 crores for the previous year and as against INR 587 crores- INR 527 crores for the quarter.
So INR 525 crores for the quarter, slippages.
Yeah. INR 525 crores versus the earlier corresponding quarter was INR 587 crores.
But we were having run rate of INR 300 crores. Last quarter, this INR 500 crores also included INR 200 crores slippages from the previous year . Have you seen similar slippages this quarter as well?
This is a combined book because what has happened is that, this I am talking to you, including the restructured book, which would have resulted in some. But overall, as I told you that despite this, there are some reductions of closer to INR 300 crores as far as I am only talking about additions and reductions. The addition was INR 527 crores, the reduction was INR 305 crores. So the net impact is something that you do have. Write-offs are lesser, and the closing balance is not as much as what it used to be earlier. Likewise, on the annual basis also, it has dropped from INR 1,836 crores to INR 1,650 crores . So which mean that closer to about INR 50 crores per quarter.
Out of this INR 305 crores, how much would be write-offs and how much would be recoveries?
INR 305 crores, ex cluding write-offs.
Write-off would be how much?
I think INR 180 crores for the quarter. Total recovery is close to INR 500 crores .
Sir, second question would be if you can provide the exact loan yield and cost of funds for the quarter. At what rate did we exit the 4Q ?
Our loan yield is 9.9% for the entire year, and cost of funds is 5.40%.
For the quarter, this would be?
Quarter. One second. Hold on. Around 5.40% for the quarter on cost of deposits and loan yield around 9.75%.
Loan yields Q-on-Q has come down, is it?
This is only the last quarter because of the mix of the business a little bit. But then overall, for the year, we have maintained it at 9.9%.
But in your opening remarks, you mentioned that the growth came from retail and MSME, so ideally Q-on-Q rate should have improved.
So there is something which you need to understand that the last year, two-thirds of our book comprises, as I said, within the two-thirds, 45% is retail and agri, and about 20% is MSME and SME. Now, these three are different in nature. Out of that, the retail flagship products are housing loan and gold loan. Those are the two. Gold is better yield, but gold loan doesn't grow that much, so obviously, we have been calibrating that. But housing loan constitutes almost one-fourth of our overall retail assets. So the rates in home loans right now, as you are aware, the market has been very competitive. So we also have been doing at 8.6% as a product. But given that, obviously, it is not like the earlier home loans which have been running at higher rates. But on a blended basis, we are still good.
If this is to continue, then the yield would be either stable or it could further come down under pressure given competitive space.
We are projecting that. So we have almost matched down on the cost of deposits. So we had taken, year before last, some 555-day deposit program and all those things. Those are coming out from what you call headline interest rate to lower interest rate. So we would see clearly tapering down of interest rates. The guidance also on the larger market side is on the interest rates coming down. So we will see improvements in NIM and primarily led by what you call moderating of cost of deposits. Also the increase in the loan yield because of the mix that we have been looking at. As I said to our earlier caller, we are launching a couple of retail asset products which are, for the first time in this bank, going to be unsecured.
This would perhaps have a better yield also, which is not that we won't dress up on the numbers, but at least this is a good start that we want to do in this area.
Perfect. Sir, second question, what will be your other income? If you can break this up into, say, fee income and treasury recoveries that we had during the quarter.
Other income. Can we send that to you?
Yes, sure. You can send that. Also, sir, if the CET1 number percentage is available because I could not find that in the PPT.
One second. Hold on. In fact, it is falling out here. It is there. INR 1,318.91 crores as against INR 992.58 crores last year. You got it, Prabal?
No, sir.
It is at INR 1,318.91 crores as against INR 992.58 crores last year. Out of that, the breakup you wanted. The breakup is-
Sir, I want the breakup of other income during the quarter, 4Q.
We will send that to you. Basically, there are four headline items there. One is commission on exchanges, other is recovery from write-off accounts, income from ATM and other channels. Other miscellaneous, et cetera. Depreciation on investment. Trading profits. So we will give you the breakup or we will send it to you.
Great. Just last question. We have been building such a superb team, and you are also getting retail head, then wholesale banking head. How are you attracting these people, and what is their compensation like in terms of whether they are being given ESOPs or how is it like?
This entire management team that has joined us, at least about six, seven of them, have all come in on a CTC basis. That is one. The CTC comprises of obviously fixed and a variable. Within the variable, about 50% of their variable based on performance would be through grant of shares, which is as part of the existing scheme that we have. It is not that we are attracting people with ESOPs. They are all coming in with a very clear opportunity as a target, working with the new management to transform the bank and really pave the path as well as the growth journey is concerned. We have done well in terms of attracting the right talent who are culturally fitting into the bank. Working and integrating with our existing team of veterans from Karnataka Bank.
If you go through our investor presentation now, you would see that we are almost like a 50/50 from our overall general management perspective in terms of the number of people. We have had two of our very senior COO and CBO, whose contract is getting over now as of May 31. We have done some restructuring, and that is how we have presented this experienced management team, where between the existing and the new, we have been kind of balancing it out. Going forward, as I said, we have already given an offer for head of retail and MSME advances and also head of retail collections. Those are all one or two positions that are key and strategic. We also recruited recently, head of digital, under our chief digital officer, who has also come from ex-Citi, HDFC Bank and so on.
That way we have been able to attract talent, and as I said, on the basis of CTC and a mix of variable, which includes the stock, but then within the variable.
Thank you, sir . All the best.
Thank you so much.
Thank you. The next question is from the line of Sanjay Shah from KSA Shares & Securities Pvt Ltd . Please go ahead.
Good evening, gentlemen. Past year has been a really exciting year, which we understand from the hardship what you have taken after taking over as a new management. My question was very broad-based. What changes you have seen in the bank after you coming in? What do you see with this digital support, technology support, bringing in some fintech partnership? How do you see that our bank doing from next year onwards, current year onwards?
Thank you, Sanjay, for the compliments. Yes, it has been exciting for all of us because we are not only joined by new management, but the existing management and the entire workforce at Karnataka Bank are quite thrilled and are participating actively in this transformation journey. There are three things that we did. One is that we created the headroom as far as capital is concerned. The second thing that we did was we strengthened the management team. The third thing that we are doing is simplifying and organizing our processes and centralization and all that, which basically includes creating a national back office in Mangalore, which is very good because we got our infrastructure and very good people here. In terms of expanding our business, obviously, there is a cultural shift.
Which is where we are making our entire organization outbound, outward-looking with the sales orientation and making sure that the sales organization and the sales culture settles in well. Along with that, we also have benchmarked and digitized a lot of products, both from a customer benefit as well as internal process on TATs and so on. This has been the next progressive thing that we have done. Last but not the least, while we increase awareness through our new repositioning of our brand, we also have attracted a lot of partnerships for products that we don't have to manufacture. Especially on the digital and client acquisitions through partners, which are in three or four different specific areas, specifically on distribution products through insurance and investments and so on, we have forged new partnerships.
We have actually done partnerships on insurance, both life as well as non-life, and also integrating with them on the digital side. Last but not the least is the co-lending, where we have been very carefully selecting sourcing partners for us with our credit standards related to MSME and impact-based lending. It is also some on the personal loan side. So we've been calibrating this and testing the waters on our overall acquisition side of the advances also. It's a combination of all of these initiatives that we have taken. We believe that with all this, when the whole Indian runs this year and for following years, we will be able to generate much more in terms of overall volumes.
That's great. To carry forward our traditional business we are focusing on some asset origination tie-ups from which we can grow from here, like co-lending with Yubi and Northern Arc and all. We wish you good luck for that, and we also see that exciting time coming for us in quarters to come. My second question, can you give us what is the average loan book size for our housing loan? Average loan book.
Just to kind of summarize the earlier conversation, and you wanted to know, we are doing this co-lending selectively. It is not that we are going all out on that. That is just one more avenue for us as far as our business acquisition is concerned, so that we test the waters. Overall, our loan average, I would say that if you take our overall wholesale plus retail and housing, et cetera, INR 40 lakhs- INR 50 lakhs could be an average per loan ticket size. But actually, that is to be looked at by segment because by segment, the averages are very different. Housing loan segment is different. Gold loan is different than your mid-size corporate loan, MSME is different. We do have the breakup, which we have given in our sectoral I said advance slide in the investor presentation uploaded already.
I will go through that. I can take it for this housing loan, it could be around INR 40 lakhs-INR 50 lakhs?
It will be lesser, actually. It will be more like about INR 30 lakhs-INR 35 lakhs. Because actually in metros it is higher. But we are operating in mini metros, as you are aware. And there it comes down a little bit.
Thank you, sir. Thanks for having me.
Thank you, Sanjay.
Good luck to you.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Srikrishnan H. for closing comments.
I wish to thank the faith that the investment community, capital market community, and the institutional investors have reflected on Karnataka Bank. Specifically, on the management and the path and the plans that we have been talking about in the market. This is exciting time for us because, one is articulation of our strategy, but the more important part is execution of our strategy. We are on the execution mode right now. Whatever that we needed to do in terms of creating the headroom and putting the right resources and empowering them is something that we have done. We are actually beefing up the technology side to make sure that the architecture and the whole scaling up is something which is possible and all the investments related to that are being made and have been made already.
Given this, we are rightly positioned for growth as reflected in the guidance so far in the call. Happy to take on any questions later on a one-on-one basis as and when any of the investors would like to. Thank you for your time, all of you, and thank you for taking the trouble to dial in. Good evening to all of you.
Thank you. On behalf of Karnataka Bank, that concludes this conference. Thank you for joining us . You may now disconnect your lines.