Ladies and gentlemen, good day, and welcome to the Q3 FY 2024 earning 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Srikrishnan H, MD and CEO from Karnataka Bank. Thank you, and over to you, Sir.
Thank you, Operator. Good evening, all, and welcome to Karnataka Bank's Q3 FY 2024 investor call. I warmly welcome each one of you for following the bank and also participating in this call. Just by way of a quick introduction, I have our executive director, our company secretary, our chief operating officer, and our CFO with me, and I will lead the discussions, and in case there's anything else that we need to ask any of my senior colleagues, we will get them to talk as well. We have uploaded today three things. One is we have uploaded the stock exchange notification on the results after our board meeting completed today. Second, we have also uploaded the Q3 FY 2024 investor presentation to our website. I am sure that most of you would have already accessed this because this was done about more than half an hour ago.
Third is we have also done a very small press release highlighting all the achievements for this quarter. Let me start off by saying that this has been a very interesting quarter for us, because we achieved a lot in terms of the transformation agenda that we had taken up. I took charge in June, and my executive director and senior colleague, Sekhar Rao, took charge in February. Between the two of us, we define ourselves as the new management of Karnataka Bank and all the KBL veterans, which is Karnataka Bank Limited veterans, my senior colleagues who have been there. We have a fantastic team of leaders who we believe are quite capable of handling this transformation. The transformation agenda we started is in three or four parts. One is that we are looking at a lot of areas in the process side.
We are looking at a lot of areas on the product side, then, of course, the people, then the technology and, of course, the whole business. We have introduced a lot of new areas in terms of new lines of businesses, enriched the existing products, launched a few products, brought a lot of lateral hiring in terms of leadership teams, and also we have made substantial progress in terms of the process improvements. But this is an ongoing journey, and obviously we have a business to run every quarter, and then we will continuously make these changes as we go along. But two, three key significant achievements this quarter is that as I speak to you, we now have a new CIO who is the head of technology. His name is Venkat Krishnan V.
He was the CTO of IndusInd Bank, and he has had extensive knowledge working in multiple banks, such as Ujjivan Small Finance Bank, Yes Bank, Dhanlaxmi Bank, where he was a CIO and all that. We also have Ramaswamy Subramanian, he is a Chief Product Officer. He is a former Chief Product Officer of Dvara Capital, and he was also Head of Products at Suryoday Small Finance Bank and of course, with HDFC Bank in the past. These are two new key additions to the management team, and we are progressing with a couple more, which we will announce in due course as and when they are on board. As far as quarterly results are concerned, we had an all-time high nine-month FY 2024 profit after tax of INR 1,032.04 crores as against INR 826.49 crores for the nine-month period ending FY 2023, which is the corresponding nine months last year.
This is an increase of 24%. As far as the quarter goes, between the last quarter that ended, which is Q3 FY 2023 the previous year, and the quarter three FY 2024, INR 331.08 crores versus INR 300.68 crores, which is an increase of 10%. This has been instrumental because of three things that happened. One is that our gross advances grew. Our gross advances grew to INR 69,740 crores as of December 31, 2023, and as against the INR 63,673 crores as of December 2022. As you are aware, we had reported this in March, whereby the very conscious call which was made by the bank before we all boarded, we actually had reduced the number of loans which were very ineffective in terms of the price and quality. It was a very conscious call to reduce the balance sheet size.
The balance sheet as of gross advances for, let's say, March 31, 2023, was actually only about close to INR 60,000 crores. Technically, we have grown up to INR 10,000 crores in the last nine months, and the same run rate continues, and I think we are in good run here. The deposit side, we have grown substantially this quarter. Our total deposits as of December 2023 stands at INR 92,195 crores. This is perhaps the highest, and as against the INR 84,597 crores as of December 31, 2022. The increase year-on-year is 9%. I will also talk about both advances and deposits in terms of the market and how we are faring in the market. On a cumulative average basis, our CASA grew up by 8% year-on-year, and our monthly average of CASA also grew by 7%. It is not just end of term numbers that I am reading out.
It is also the overall average, which means that our customers keep broadly the average even during the month. Our CASA percentage is retained at about 31%-32% despite the movement. As all of you know, this last quarter, all banks have faced a lot of issues related to deposits, and it is not only tough to get low-cost deposits, but the last quarter, we have had a very different kind of interest rate scenario, whereby the deposit rates and the whole market was different compared to the previous quarter. Overall business turnover for the bank, we have crossed the landmark number of INR 160,000 crores. Right now, it is a very significant landmark as far as the bank is concerned. Currently, as I speak to you, we are over INR 162,000 crores.
This is a 9% on a year-on-year basis and a 12% increase on the overall YTD basis from March 2023. There are two other very clear metrics that I want to call out. One is related to net interest income. The NII has increased marginally from INR 822 crore for the last quarter to INR 828 crore. However, the NIM, which is a very important parameter, we are still in the guidance range of 3.4-3.7, which has been given to the investors and in our investor presentations. We are standing at 3.46, despite the fact that it was not the loan side that was really bothering us. The loans, we have actually kept it at the same level. It is actually the cost of deposits that has been marginally higher than the previous quarters.
As a result, we are in a better position overall on the NIM, and we are currently, one minute.
3.57 for nine months.
The NIM for nine months stands at 3.57. I called out the quarter, which was 3.46, but overall, 3.57 has been the NIM across the nine-month period. ROA, we are at 1.21%, and our guidance was always between 1.2-1.4. We continue to maintain that, and our target range has been met here. Return on equity for this quarter was 14.26%, but for the entire nine-month period-
15.18
it is INR 15?
15.18.
15.18. This is again very clearly within the guidance of 14%-16%. This is what we have been telling the market, and we are well within the track related to that. As far as the ROA I talked about already. Cost to income is concerned. This is another metric that is very important. Cost to income, because of the expenses that we are incurring, one, due to the IBA settlement, which I had mentioned in the last investor call, where we were providing the other 15% increase from November of 2022 onwards. But on December 7, the IBA reached a settlement with the bank, and the actual number was increased to 17%. We had to actually provide for 2% on a retrospective effect. The extra 2% that we have provided for actually accounts for almost like an extra provision one time of about INR 25 crores.
Now, the total provision that we have made across for the 17% from November 2022, which will be paid out as and when the settlement is completed, will be to the tune of INR 60 crores right now that the bank has provided for. This is over and above the normal because this was not the case last year. Despite the increase there and the cost that we are incurring on new technology and everything to do with the lateral leadership, hiring, et cetera, the cost-to-income ratio is about 53%, and we are very confident that in the next couple of quarters, with the growth in revenues and with the growth in our overall income, we will be in a position to control this and bring it back to sub 50.
Now, this has been our target, and we believe that we will be in a position to come back to this.
Cost to income nine month 51.
Sorry?
Cost to income nine month 51.
Yeah. Cost to income on the nine-month basis is 51%. The other part is about the quality of the assets. The net NPA has improved. It is at 1.55% from the 1.7%, which was the March 2023 figure, and it is 1.66% it was in Q3 corresponding last year. Overall, there has been a reduction in the net NPA. The gross NPA, GNPA, has also improved in Q3 to 3.64% from 3.74% as of March and, of course, compared to the last year, which is Q2 FY 2024, it was about 3.47%. The slippages is an area of a little bit of a concern. It is not that bad, but the slippages is at about 0.8%, only because of the fact that there were a bunch of assets which were classified as restructured assets.
The restructured assets has come down drastically, and I can also tell you all that the total restructured assets for The Karnataka Bank is less than INR 2,000 crores. But on the other side, some of this are stressed up and they are contributing to the NPA. We believe that in the next one to two quarters, with great monitoring and very close monitoring, we should be able to control this. Our capital adequacy stands at 15.88%, and all of you are aware that we had raised money in November. Actually, the money came in October, sorry, where we had raised INR 800 crores from five marquee institutional investors. The institutional shareholding in The Bank has increased to close to 40%, and the Tier one capital, currently it is at 13.66%, and Tier two is 2.22%.
The reason for the reduction in Tier two is because in November, we have repaid INR 400 crores of Tier two capital, which was quite expensive at 12%, and we have completed that call option. We are also planning to do another call redemption in February, when another batch, which is a tranche totaling INR 320 crores, would be available for us for making the call options. We will be exercising the option. We already sent our approval request to the regulators for the same. This would account for definitely better net interest cost for us because the overall cost was pretty high. One of the things that I wanted to also talk about is the cost of funds improvement that we are doing. The bank has been approved, and we have gone live for collection of CBDT, which is direct and indirect taxes.
We already were live for customs duty payment and also for GST collection. All of this for the key markets, for all our borrowing accounts and all our savings and current accounts, all of these customers, we are promoting this both digitally as well as through our branches. We believe that the collections part due to this government business and also the fact that we are an agency bank and we are approved to open government accounts, both for the state government as well as for the central government.
We believe that there is a good possibility that exercising these options, which include calls on Tier two bonds, plus the current account, the CASA push through the government business and the flow that we get from the GST taxes and customs duty collection would definitely have a positive impact as far as our cost of funds is concerned. The credit cost for the quarter was at 0.25%, and it is more or less at the same level as the previous quarter. Standard restructure advances, as I mentioned earlier, it is less than INR 2,000 crores, and this is a significant improvement compared to the previous quarter and the last year corresponding quarter where the number was pretty high. There are a lot of conversions that have happened from these restructured advances into standard assets.
The other last part that we wanted to talk to you all is the fact that going forward, you are all aware that we have an approval from the board for raising INR 1,500 crores of capital, which includes options which is in the form of instruments as preferential allotments or QIP or bonus or whatever instrument that is applicable. We have exercised that and raised 800. We have to raise INR 700 crores to make sure that we are comfortable. Our capital adequacy is comfortable, but we need definitely growth capital. Also, the fact that we are going to repay another INR 320 crores of Tier two bonds in February, that is also an option that we will need to exercise for augmenting the capital part. We are working towards making that happen.
We have also released to the stock exchanges today that the board is meeting on 27th this month again, which is four days from now, to discuss the issue of capital raise for the second tranche, which is the total of INR 700 crores. On that note, I will transfer it back to the operator for questions, and I am happy to answer any questions. Me and my senior colleagues here, we are ready for this. Over to you, operator.
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 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. Ladies and gentlemen, you may press star and one to ask a question. The first question is from the line of Narendra from Robo Capital. Please go ahead.
Hi. Thanks for the opportunity and congratulations on the pickup numbers.
Narendra, sorry to interrupt you. May I request you to use your handset, Sir? Your audio is not clear.
Hi, am I audible now?
Yes, Sir. Please go ahead.
Hi, thanks for the opportunity. Sorry, I missed your earlier part of your statement. I needed a bit of guidance on your loan growth going ahead and also your credit costs, if you could provide something on that.
Okay. Thanks, Narendra. Good evening. Our gross advances, on a YTD basis, has grown at 18%. It stands at INR 69,740 crores as of December 31st, 2023. And the run rate that we are expecting as we go forward is more or less the same. We stand committed to what we had mentioned. I had gone live saying that by 2026, we would cross INR 100,000 crores. That's a INR 1 lakh crore, and I think we are well on target to achieve the same, if that gives you an answer on the gross advances part.
Yeah. That helps. Yeah. Regarding your credit cost, Sir?
It's 0.25% right now. We believe that we would very much be in the same level. It was the same level as of the last quarter also. Our total cost, which is the total lending, et cetera, more or less has been also the same.
Okay. That's great to hear. Regarding your cost of funds, Sir, I see that cost of deposits are going up. At what level should it stabilize? Are there further chances of a hike in cost of deposits and also-
You know the whole market has been looking at this interest rate scenario.
Yeah.
A lot of pundits have been saying that by middle of this calendar year, that is like June, the rates are assumed to be coming down. We also believe that from our treasury perspective, the same thing will happen. Right now, the cost of, let's say, the low-cost deposit has been a challenge in the market for all banks. All the banks this quarter have had this issue, which is why our total cost of funds has gone up a little bit. Having said, our NIM is intact. We have not moved much on that, partly because of the loan growth and at a very reasonable rate. We have not really gone lower as far as the loan rates are concerned. The interest rates on advances has been kept steady, or it has been improving, and low cost of deposit has been a challenge.
So we have been also, We are not in the market to, let's say, do the bulk deposits at a very high rate. We have never been in that market. Our entire deposit franchise has been granular. Our entire deposit franchise has been more from the current and savings account holders who have been with The Karnataka Bank for generations. As you are aware, this is the centenary year of The Karnataka Bank. We recently met up with a lot of customers at multiple locations as part of our centenary event, where customers who have been banking with us for two to three generations, they were present. It was a very overwhelming situation when we met them, actually. Very, very pleasing.
You have done indeed a commendable job on that front. The NIMs going ahead should be in the range of 3.4% - 3.7%, right?
Yes, Sir. We are not moving that guidance at all. We are staying put.
Okay. Good to know. Regarding your other income, how should that pan out for the next couple of years?
Good question, Narendra. This bank, we have not had much of a cross-sell or let's say other products in the FX side or in the trade finance or in the third-party products. What we are doing is that we have been focusing a lot on the cross-sell and penetration. We are also having an analytics center, which is doing a lot of data-driven acquisition strategies by providing lead generation to customers based on transactional behavior. Our analytics center of excellence, which is located in Bangalore, actually provides data to all branches for their set of customers who, for instance, if let's say they are paying an EMI loan and not necessarily have availed of a loan, then that's a good case for a home loan or a top-up loan or a home improvement loan or something like that.
Likewise, if it is a policy premium that is being paid out of the account and we have the ability to track that for our own set of customers to go ahead at a branch level or at a field sales level and make sure that we are able to sell a policy. We've also tightened up the new partners for life as well as the non-life. We've already appointed two new large insurance life partners, HDFC Life and Bajaj Allianz Life, and we will be doing the same in the non-life, that's the general insurance side also.
Okay. Yeah. You have been doing a commendable job on the tech side. That brings me to my next question is regarding your OpEx. Going ahead, would the investment slow down or are we still going ahead full steam on the tech side investment?
As far as the baseline applications are concerned, we are good on core banking, we are good on the data lake, we are good on the digital journeys, we are good on the front-end applications, we are good on the back-end infrastructure, including our DR, which we shifted recently from Bangalore to Mumbai to be in a different geo-location. All of those have been achieved. The incremental spend that we will be doing is to make sure that the integrations with collaborative businesses, which are essentially for FinTech, co-lending, wealth management products, all of the third-party products that we are doing, et cetera, is something that we are going to do.
All of the tech expenses that we will be doing are mainly going to be CapEx from that perspective, and which is why we are also making sure that our capital range will make sure that we are quite comfortable on that front. We have done reasonably well, and we believe that the transformation, which is from a technology, product, and process perspective, involves a lot of investments, which will continue, but those will be, again, very clearly product and opportunity-driven.
Okay. Good. FY 2025, cost to income should be below the 50% mark, right?
We are definitely aiming to become lesser than sub 50%.
Okay. Thank you so much, and all the best. I will join back if I have any questions.
Thank you. Over to you, operator.
Thank you. A reminder to all participants, you may press star and one to ask a question. Our next question is from the line of Prabal from Ambit. Please go ahead.
Hello. You are hearing?
Sir, may I request you to use your handset? Sir, your audio is not clear.
Okay. Is it better now?
A little better.
Okay. The first question would be on asset quality. If you can indicate, what is the movement in GNPA during the quarter, that is slippages, recoveries, and upgrades, and technical write-off.
Yeah. Your name, please?
Prabal.
Prabal. Okay. Hi, Prabal. As I had mentioned earlier, the GNPA has improved in Q3 to 3.64% from a 3.74% as of March, and this is the 10 basis points that has come down as far as the GNPA is concerned. As far as our gross NPA and slippages ratio, our gross NPA overall from opening of INR 2,324 has gone up to INR 2,536. I had mentioned in the earlier part of the call that we are actually seeing some movement from the restructured assets into the NPA, but it is very much in control, the reason being that our branches are engaged with personal visits to each one of them. The additions during the nine-month period has been INR 516, and the reduction in terms of write-offs, et cetera, INR 173, and the overall position remains at INR 2,500 crore.
Now, slippages ratio, we are at 0.8%, which has gone up compared to before for the same because the previous quarter, we were at 0.52%. Quarter-on-quarter basis, this is an increase, but I believe that in the next one to two quarters, this will stay, and then we should get into a comfortable position.
Okay. Slippage is INR 516 crore for the quarter, and recoveries and upgrades were INR 173 crore, and write-offs were zero.
Write-offs were-
Write-offs were INR 129.
INR 129. So basically, recoveries were just INR 50 crores.
No. Both put together INR 300 crores, INR 302 crores. Reduction, excluding write-offs, was INR 173.99, INR 174 crores. Write-offs, INR 129.62 crores. Both put together
INR 300
INR 300 + crore, INR 303 crore.
Fully provided.
Okay.
All these are fully provided for, just to let you know.
The write-offs are fully provided for, so it is just movement to technical write-offs from fully provided account.
Yes. Thank you. These slippages, because you are mentioning that this has come from restructured accounts, but within the restructuring, around 55% of the book is just mortgages. If you can give some color on these slippages as well, how much will be corporate, and what will be the retail, and so on and so forth.
Our overall, so that we understand this, up to close to 95% is collateral-based, so we do not have any unsecured from that perspective. Second is the breakup between retail and corporate is about close to 50/50. There is not a change as far as that is concerned. The last part is on the total What was your third question, Sir?
My question was breakup of slippages. This INR 516 crore, how is it distributed across segments?
Across the segments, it is actually more of the SMEs and the MSMEs that have happened. I would say that close to 70%-75% of the slippages have happened only from the MSME and SME books, which we had lent earlier. In many banks, these are treated either as mid-size corporate or SME, depending on the definition. Our definition has been SME and MSME for this.
Okay. Is there any assessment of what is this kind of vulnerable pool within the restructuring, which is sitting in the bank currently?
We have made some accelerated provisions in the last couple of quarters, including this quarter. We believe that, let's say, close to 35%-40% of the current book, which is a restructured book of close to INR 2,000 crores, would be in some kind of a stretch. Having said that, there's lots of engagement which is happening at the branch level. If at all I need to quantify that, it would not perhaps exceed about INR 600-INR 700 or maximum INR 800 crores.
Isn't that surprising? A big portion of the restructured book is mortgages and MSME, and around 35%, even in an environment like this, is still under stress.
This is all the historical book, Prabal. What has also happened is that this has been something which we had flagged off earlier on the total number. From the total number of restructured assets post-COVID, The Karnataka Bank had close to INR 4,500 crores. From there, we have brought this down to sub INR 2,000 crores right now. There is significant progress that has happened in terms of making them all standard or making them into NPA and write it off. We are fully providing for in the previous quarters. As I said, we are managing it through accelerated provisions and also making sure that this number does not really have any impact as far as our overall growth or numbers is concerned going forward.
How much is the coverage on the restructured pool currently?
What is the coverage on restructured pool? Standard.
13%.
13%.
Where is exactly accelerated provision sitting on the balance sheet?
In the overall general provisioning, NPA provisioning.
NPA provisioning.
NPA provisioning it is sitting.
Okay. Any targets of where do we plan to take provision coverage ratio?
The overall PCR without technical write-off, we are above 80%. We are hovering around 81%, 82%, and it still continues to be the case, we have not dropped from there. As well as our excluding technical write-off, we are at about 58-odd percent. Our attempt, obviously, is to take it to 70% in due course, but that is definitely not going to happen within a year. It will take probably about 15 to 18 months to reach that number.
Okay, got it. Our next question will be on growth. We had a CD ratio of 73% and additional liquidity on the balance sheet, which was a drag to our margins. We had planned to ramp up the credit book quite significantly. But I don't see that traction happening in the third quarter. Only corporate has grown, MSME has not grown, agriculture, retail, none of them are growing. Anything that has changed?
We have grown the overall asset book by 18.5% in this quarter also. There is no change to the overall number. As far as retail and MSME is concerned, we have deployed during the quarter 250 sales officers from the bank and 400+ feet on street in the ground to look at both CASA as well as the retail assets. We also employed two other agencies who are there, who are for the retail asset sourcing. This is something that we have invested into, and the results of that will start coming in, one. Secondly, all the branches have been equipped with a lot more empowerment from a process perspective on approvals to be given, either in principle or the processes related to credit approvals for the retail asset in a much faster pace instead of the earlier process.
We have set up five regional processing centers, and we'll go up to eight, where it is empowered and they are able to actually get the approvals done. The real ramp-up is going to happen in the retail side. The other part is that the overall growth is not necessarily in the other area. Out of the total, the gross advances, INR 69,740, this is about close to INR 3,500 crores of total asset that has grown. Out of that INR 3,500, at least close to INR 1,000 crores has come from retail. Retail and agri.
Okay, understood. My last question-
Sorry to interrupt, Sir. May we request you to return to the question queue for follow-up questions, Sir?
Sure.
Thank you, Sir. Our next question is from the line of Manav Mehta from Axis Securities. Please go ahead.
Hi, Manav. Good evening.
Mr. Manav, your line has been unmuted. May I request you to go ahead with your question?
Mr. Manav?
Mr. Manav, may I request you to unmute your line from your side? The line from Mr. Manav has dropped. May I request that we move to the next question? Our next question is from the line of Hatim Broachwala from JM Financial Mutual Fund. Please go ahead.
Yeah. Hello, Sir.
Good evening.
Good evening. Sir, my question is on the loan growth. It has been observed that this quarter, the bulk of the growth is there from the corporate, and it is from the large enterprise segment, which typically is low-yielding, and also that impact is seen on the NIMs. So NIMs of 3.46% is now closer to the lower end of our guidance. I want to understand your perspective, whether this is like a temporary park-in which we have done, or how the growth and NIM you will be planning ahead.
The question that you had is about the growth in advances. The growth in advances has been at 18.5%. I do not think that there is any slowdown as far as our overall gross advances is concerned. It is also important for you to note that we have been lending at the reasonable rate, so our total cost of lending, the interest rate has not come down. The real pressures and the NIM compression has happened by a couple of bits here or there. It is only because of this deposit side. On the deposit side, the whole market has faced in this quarter, it is not only pertaining to Karnataka Bank. It is important for you to know that each of the banks have had pressure on the NIM. This is basically because low-cost deposits were not available in the market that easily.
Secondly, there are also very high cost as far as the FDs were concerned. We did not go for buying those FDs, so we have managed it. There was a question earlier also, which I did not answer about the CD ratio of the bank. The CD ratio of the bank was earlier at 69% and 72%. For this quarter, we have gone up to 75%. Whatever headroom was available, we have already gone up to that. I believe that the growth has been very encouraging and very healthy from the overall margins are also concerned. We will maintain the NIM margins between the 3.4% - 3.7% guidance. I do not see any change to that in the quarters that are coming up.
Okay, Sir. My other question is on this wage hike provision, which you have mentioned that you have provided INR 25 crore extra during the quarter.
Yeah.
Is this like a one-off? Will it repeat.
Yeah.
In next quarter or this INR 25 crore won't be there next quarter?
I'll just explain that to you. As of November 2022, IBA settlement, they had announced saying that they are negotiating with the banks, and the number that could be perhaps coming up was a 15% increase from November 2022 onwards. Since then, we have been providing at the same 15% on a quarter-on-quarter basis. On December 7, IBA reached an agreement with the banks where the total number was given to us as 17% as an indicative on the final rate. Because we have not provided 17%, we have provided only 15%, we had to do a retrospective effect from November 2022 onwards, and the total one-time provision for this quarter was INR 25 crore. This will not recur again.
Okay. And Sir, lastly, what is your outlook on gross NPA going ahead?
We are at about 3.64%. We want to first come to the level of 3%. That is our immediate target. We should take it to 3% in about six months from now. We believe that there will be a corresponding reduction in the NNPA as well. Provisioning, as well as the accelerated provisioning and slippages should be better controlled compared to before. We believe that we are well past that stage when there is any risk as far as The Karnataka Bank is concerned on the book. Yes, this was a traditional legacy bank. The new management has taken charge, and we have cleaned it up as much as possible on the asset side and overall in terms of the transformation journey that we want to take.
Sir, reaching 3%, considering that you also have some more stress in the restructured book. You mentioned INR 700 crore around stress is still left in the restructured book. If that slips, then reaching 3%, would it be possible? I mean,
Yeah. There are two things, actually three things. One is that we have been providing for, there is an accelerated provisioning for this book. Secondly, there are recoveries that are happening. The third is that there are conversions to standard from this book also. All the three will contribute, and we believe that we should be very comfortable because the book size is also not that much compared to our overall INR 70,000 odd crore gross advances book. As a percentage of the overall book and as a percentage of the risk that we are facing, we believe that it is getting minimized because as I told you, the book was post-COVID close to INR 4,500 odd crore.
Sir, what is the provision we are holding against this standard restructured loans?
It's part of the overall NPA provisioning that we have done. Whatever that, on the standard side, that is 13%.
Do we hold any contingency provision?
No.
Okay. That's it. Thank you.
Thank you.
Thank you. Ladies and gentlemen, before we take the next question, a reminder to all participants, you may press star and one to ask a question. Our next question is from the line of Sushil Choksey from Indus Equity Advisors. Please go ahead.
Congratulations to Karnataka Bank team for a stable result. My first question, what kind of interest saving are we seeing from the bonds which you are likely to redeem?
The bonds are at 12%, and we believe that, obviously, if we have to look at liquidity, the market is at about 6%-6.5% right now. There is a significant saving. Definitely on an overall basis, there could be a significant saving. Having said that, as we raise money, both on the Tier one and Tier two, there will be a consolidated, let's say, a blended kind of a provision. Overall, I think on the book, about 8 basis points-10 basis points is what we can expect in terms of the NIM improvement because of this.
Any further bonds of high cost left or this is final?
No, this is the final right now and the next tranche-
10.7.
300 is still left at 10.7, which is not bad.
Okay. My next question, 100-year celebration, centenary celebration, and migration to the next 100 is what Karnataka Bank story is all about for last 6 - 12 months with new induction of yourself, ED Sekhar Rao, and few other management executives which are joining and including the announcement happened. How much of transformation journey, the journey has begun, but what is the period you estimate on a stage one level basis, whether we take the transformation journey within next six months, one year, or it will be a longer period?
The transformation journey, from that perspective is an ongoing. Obviously, it is a question of what is the milestone that you are defining for your one-year period, et cetera. But if you really have to say that, let us say, Karnataka Bank, we have to be in retail asset business, full way competing in the market. Or let us say that, we have to be in the SME on a digital basis and acquisitions and so on. The alternate channels for offering third-party products through the digital bank. All of those kind of, I am just giving you some example flavor of what we are working on. All those things should get completed within a one year of today. The other part is that we are also growing the book healthy. Secondly, we are also maintaining the NIM margins, et cetera, intact and controlling on cost.
Which means that overall, the book will grow in a controlled basis, but new products and also new market, new opportunities we will be chasing. For the centenary year, we have been in the celebratory mode. We have done some customer events in Bangalore, Mumbai, Delhi, Hyderabad, and now finally, we will do one big event in February, in Bangalore in the headquarters. What we are trying to do is to make sure that we are getting the customer connect and getting the cross-sell from our existing customers. Perception of the bank, which is from a brand repositioning side, there are some efforts that you will see in the next 10-15 days, where we will be projecting ourselves as a national story rather than being a regional story. This is how the transformation is happening on multiple fronts.
Do you think the integration of human resource, technology, the new initiatives, new management team, including the ones which you are going to hire and recruit in next few days or few quarters, all this would be panned out in 2024 or up to 2025 March, or it will take longer?
It will be up to 2025 March, in terms of the overall balance. But going by the current trend, at least the strategic leadership position, and the mix between our Karnataka Bank veteran management and our new lateral senior leadership management who is coming in, by that time, could be more or less like a 50/50.
You expect positive results from current quarter, next quarter or by second half?
We are on the right trajectory as far as the growth is concerned, and we believe that we will be growing at the same pace and improving the pace as we go forward.
I am not worried about the pace. The business is available. What I mean is more from a point of view, cross-selling, many other products launches. There would be a cost involved at first spend, but you will have earning capacity and capability to market. Maybe a customer is doing home loans but maybe taking three more products from you. That would eventually have an impact on your bottom line. That should be visible in next one or two quarters or longer period?
In two quarters. We have already created a product from a sales organization in the bank. We believe that the kicker from that will start yielding from this next quarter onwards. We believe that a total of two quarters, which is like from June this year, we will be in a much better shape where all the new investments and new initiatives that we are taking up will start yielding results.
Thank you for answering all my questions and best wishes for the centenary celebration and years to come.
Thank you so much, Sir. Thank you for all your support.
Thank you.
Thank you. Our next question is from the line of Sudhir Mahajan from Mahajan Family Office. Please go ahead.
Congratulations, Sir. My question is, you had mentioned that you're having an issue of capital in the next few days. That is going to be again, the balance of the INR 700 crores which is left, or is it going to be less?
Mr. Mahajan, good evening.
Good evening.
Yes. It will be part of the INR 700 crores. What we are seeking an approval from the board. The board has already approved INR 1,500 crores. We just need to kind of initiate the action related to that. For which the board is meeting on 27th. But then it is not going to happen. The issue is not going to get done within the next few days as you said. It will take perhaps some time, but then at least the board will give us directions, in terms of raising money and the type of instrument that we need to do, et cetera. More clarity will emerge post 27th in terms of that part. But to answer your question specifically, it will be up to a total of INR 700 crores.
The next question is, I think you mentioned something like a bonus. Are you thinking of a bonus or a split or something?
No. I said that the board had approved three or four other instruments which are permitted. One is the preferential allotment, the second is a QIP, the third is a bonus, which is what the AGM approval also had happened in September and October. I was referring to that. I do not think that there is any plan related to bonus or IPO.
Okay. My suggestion is, why don't you think about the split?
At an appropriate time, we will do that, Sir.
I think it will be very beneficial for the shareholders.
Thank you, Sir.
Thank you. All the best.
Thank you so much, Mr. Mahajan.
Thank you. All the best.
Thank you. Our next question is from the line of Kunal Sukhwani from Indvest Group. Please go ahead.
Hi, Sir. Thank you for the opportunity. Just one question from my end. As per the Reserve Bank of India circular, did we provide anything for our AIF investments, if we had any?
Good evening, Kunal. We do not have any exposure on AIF, so we have not provided any additional amount in this regard.
Okay. Thank you.
Thank you so much.
Thank you. A reminder to all participants, you may press star and one to ask a question. Our next question is from the line of Jagdish Sharma, who's an investor. Please go ahead.
Thanks for the opportunity. I have one.
Mr. Sharma, sorry to interrupt you, Sir. May I request you to use your handset? Sir, your audio is not clear, Sir.
Am I audible now?
Yes, slightly muffled, Sir.
One second. Am I audible now?
Yes, Sir. Please go ahead.
Sir, what is the other section in the GNPA breakup, which went from 1.1% - 5.7% quarter-on-quarter? What is that actually?
Sorry, can you repeat the question?
In page number 32. What is the other section in the GNPA breakup? There is something called others in the GNPA breakup section in page number 32.
Page number 32, GNPA.
Yes. It went from 1.1% - 5.7%, quarter-on-quarter. What is that actually?
From the sector perspective. Sir-
Yeah, sector-wise.
Can we get back? This is about the sectoral part, right?
Yes. Sectoral part. In the asset quality, in the sector-wise, you have given 5.7% as others. Others is the 5.7% it constitutes. So what is that?
Yeah, basically whatever we cannot classify into the defined sector, we classify under others. Nothing serious.
Okay. Because it went from 1.1% - 5.7%, because others has come down, only others and this MSME has went up. Other than that, agri, housing, and all these things have come down. So, what is that actually? Because it went up by 400 basis points. That is why I asked that question, Sir.
I do not think that the amount is very significant in terms of absolute terms. Having said that,
Okay.
Allow us to come back on this, please.
Okay, fine Sir. My second and last question is, though the GNPA has come down from nine months or year to year March 2023 perspective, it has started to go up quarter on quarter. If you see the last quarter and previous quarter, it has gone up. What is the main reason for that?
The main reason is what I had stated earlier for another similar question.
Restructured advances.
The restructure book-
Okay.
That we had, it was about INR 4,500 crores. From there we have come to some INR 2,000 crores.
Okay.
As we go-
Okay
Now, there is a standard asset conversion. There is also NPA conversion, which is provided for, and there could be a write-off in terms of the slippages.
That is the reason for this. But we believe that we are in total control, and as the overall percentage of this residual amount in the book on the overall gross advances, it is not a very significant amount for us.
Okay, Sir. Please reply me the first one, Sir. Thanks. Thank you. Have a good day.
Yeah, we'll get back to you, Sir. If you can even write to us on the regular ID which is there on the website, we'll reply to you so that we get to know who you are.
Definitely, Sir. Thank you, Sir. Have a good day.
Thank you so much. Good evening.
Thank you. A reminder to all participants, you may press star and one to ask a question. Our next question is from the line of Yashwanth Kumar Tippaswamy, who's an investor. Please go ahead.
Yes, Sir. Yashwanth Kumar. Good evening.
Yeah. Good evening, Srikrishnan. My question is on CASA ratio front. I have been following up, and then there are a few details which have been shared with the exchange with respect to government businesses have opened, and we are also opening the platform in order to do a GST and other forms of government business. Having said this, there is a decline with respect to CASA ratio. Where do you see this to stabilize, or can we expect some kind of improvement considering the kind of advances that we are planning to?
Overall, I think you are aware that all the banks have been facing a drop in the CASA balances. The real cost of deposits for the banks have been higher in this quarter. This is typically whatever results that we win, this is a seasonal cycle where Q3, essentially it happens. The second part to counter this is that we have been growing the assets at more or less a good rate so that we do not have any impact as far as our NIM is concerned. Our net interest margin still continues despite this challenge on the cost of deposits, which has gone up, but still at about 3.4% - 3.7%, and I think we will remain there only.
The last part is that our CASA ratio has been about 31%-32%, and even in this tough quarter, we have continued to maintain that. That is also a good thing. The reason is that we also have the float business which is coming in by way of this government collections and also a significant increase in our current account and the agri portfolio that we have, which is coming back as deposits to us because post the harvest season, there is always inflow into the bank, and we at Karnataka Bank have been seeing this for several years in the past. This is part of our regular, let us say, routine that happens as a seasonal trend.
Okay. Coming to the gross NPA, it looks like you have given the reason also, but I am very much particular with respect to the sector otherwise the industry. Is it standard across industry that you are seeing, or is it the only legacy issue that Karnataka Bank's advances that legacy is dealing with?
I think, partly legacy. I think mainly it is COVID-related. It is nothing to do with Karnataka Bank alone. It is also part of the overall industry. Any bank of this size has gone through this. But we at Karnataka Bank have been taking preemptive steps in the past, post-COVID, and ever since we as new management came in, we have been focusing on the growth through transformation and also making sure that we are providing for the growth through additional capital. Last but not the least, we are controlling the growth of the book with good health. So we are actually doing a combination of all this to ensure that we grow with quality and not necessarily just grow in quantity. We believe that we should be better off as we go forward in the forthcoming quarters.
Okay. My last question is with respect to the capital. The capital that we are planning to is going to help boost our book, I mean, advances as well. For how long do you think with the current capital increase can we go, I mean, what mileage would it give us to raise this INR 700 crore capital?
Capital adequacy is comfortable. We are at 15.88, and this is not including the nine months of profit, which we have not accounted for, because as per regulations, we are allowed to do this only during the audited results. That will happen only post the year-end. Now, with that, I am just telling you that we are far more comfortable, but the real reason that we are raising capital is two parts.
One is that we have this high-cost Tier two, which is to the tune of INR 320 crores maturing or available for call options in February, and the second is that we are investing a lot into technology, and there we need some CapEx and also the growth in the sales and the front-end sales teams, which we need to invest for getting better returns as far as our retail business, both on liabilities and assets are concerned. So that is the reason that we are raising. With our capital adequacy, we believe that the additional capital that we are planning to raise will be very good for at least the next 15-18 months for the growth.
Because just to give you the sense on that, every INR 10,000 crores of increase in the gross advances, we have to allocate INR 1,000 crores of capital to ensure that we stay at the same level of capital adequacy. We want to stay the same way. Which is why we believe that the plowback that happened from the profits and also the churn that happened because of Tier two and the additional capital we raised, we should be good for at least 18+ months .
Okay. Thanks for the information and all the very best.
Thank you so much, Sir. Operator, any other calls?
No, Sir. That was the last question of our question and answer session. I would now like to hand the conference over to Mr. Srikrishnan for closing comments.
Thank you very much to the investor community, capital market community, institutional investors who have taken and trusted us. The faith has increased our institutional holdings from the erstwhile 7%, 9% onwards to almost close to 40%, and this is a very healthy sign as far as the bank is concerned. We are quite receptive to any changes that are required as far as the bank's trajectory is concerned, and we believe that with the right kind of management, lateral leadership changes, the right investment into technology, right market positioning, brand positioning, and more importantly, good health in terms of the quality of the book, the existing as well as the new, we believe that we are on the right track, and we believe that we will be able to make the same amount of progress in terms of the growth percentages across various metrics as we go forward.
Thank you very much for your participation today.
Thank you. On behalf of Karnataka Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you so much.