Ladies and gentlemen, good day and welcome to The Karnataka Bank Q2 FY 2026-2027 financial results conference call. 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 this conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. Today we have with us on the call the MD and CEO, Mr. Raghavendra S. Bhat, and ED, Ms. Biji SS from Karnataka Bank. I now hand the conference over to Mr. Raghavendra S. Bhat, MD and CEO. Thank you, and over to you, sir.
Good evening, Mr. Alaric. Very pleasant evening to everyone, and thank you for participating in the Q2 FY 2027 earnings call of Karnataka Bank, a banking institution that has successfully navigated the financial landscape for more than 102 years. The journey began in 1924 with a simple purpose to serve our customers with trust, prudence, and a personal touch. As we now continue our journey in the second century of financial service, we have grown increasingly resilient and continue to serve as a dependable banking ally for millions worldwide. Rooted in its legacy from the coastal city of Mangaluru in Karnataka, our Q2 FY 2027 performance showcases a steady consecutive quarterly expansion powered by our stakeholders, customers, and staff under the capable stewardship of our chairman and the board.
We have successfully delivered on our promises to the investors and secured substantial enhancements across every primary financial metric, demonstrating the impact of structured implementation and operational excellence. Our strong growth trajectory reflects substantial operational progress, which will become clear as we walk through the financial metrics. I trust you have had the opportunity to walk through our financial results and investor presentation, which were circulated after yesterday's board meeting. Turning to the broader financial system, the Monetary Policy Committee, MPC, has unanimously voted to increase the policy repo rate by 25 basis points to 5.50% during its October 26 meeting. The MPC also decided to change the stance to calibrated tightening. Global growth remained resilient in 2026 so far, supported by AI-related investment and fiscal stimulus measures, despite disruptions due to the ongoing West Asia conflict.
Renewed energy price pressures, stoked inflation pressures, and prompted a more hawkish stance from the regulator. Fiscal sustainability concerns, persistent inflation, and geopolitical uncertainty raised bond yields, while equity markets remained volatile amidst lingering concern on valuations of technology stocks. The domestic economy showed resilience in H1 2026-2027 despite continued global uncertainty amidst the conflict. The supply-side pressures were well managed by proactive policy measures by the government that ensured adequate supply of key inputs. Real GDP recorded a growth of 7.8% in Q1 2026-2027, reflecting strong momentum in underlying economic activity. Aggregate demand remained strong on the back of both private consumption and investment. Going forward, India's macroeconomic outlook remains resilient, supported by domestic demand and strengthening investment despite persistent global uncertainties. The outlook remains vulnerable to geopolitical developments, volatility in global energy markets, and weather-related uncertainties.
Weak monsoons, protracted geopolitical tensions, rising international commodity prices, additional frictions in global trade, and tightening of global financial conditions could adversely impact the growth outlook. Let me now present the business highlights. The Karnataka Bank has achieved its highest ever aggregate business, which stood at INR 207,132 crore as of 30th September 2026, up by 5% Q-o-Q from INR 197,007 crore as on 30th June 2026, and up by 17% Y-o-Y from INR 176,461 crore as on 30th September 2025. Gross advances stood at INR 92,015 crore as on 30th September 2026, reflecting a Q-o-Q growth of 6% from INR 86,610 crore as on 30th June 2026, and a Y-o-Y growth of 25% from INR 73,644 crore as on 30th September 2025. Our overall strategy is to continue our focus on growing retail, agri, and MSME work.
Our RAM portfolio has grown from INR 53,172 crore as on June 2026 to INR 56,969 crore as on September 2026, which is a 7% Q-o-Q growth. From INR 47,958 crore as on September 2025, which is a 19% Y-o-Y growth. In absolute terms, MSME, housing, gold, agri, and car loans have contributed around INR 3,598 crore to our retail segment during Q2 FY 2027. The Karnataka Bank continues to reduce low yield corporate exposure in accordance with our earlier stated strategy.
We are systematically replacing the IBPC book with higher yielding loans to drive margin expansion. IBPC portfolio, which was at INR 1,375 crore as on 30th June 2026, has been brought down to INR 1,309 crore as on 30th September 2026. Accordingly, around INR 66 crore have been replaced during Q2 FY 2027. Going forward, our strategy focuses on accelerating retail expansion and stabilizing the corporate portfolio by prioritizing high quality, better yielding assets.
Aggregate deposits as on 30th September 2026 stood at INR 115,117 crore, reflecting a Q-o-Q growth of 4% over 30th June 2026 at INR 110,396 crore and a Y-o-Y growth of 12% over 30th September 2025, at INR 102,817 crore. CASA ratio as on September 2026 was 31.80% and 32.42% as on June 2026, and as against 31.01% as on September 2025. The Karnataka Bank has continued to focus on shifting high cost bulk deposits to granular retail deposits of less than INR 3 crore. The retail term deposits that is less than INR 3 crore has grown by 4% from INR 69,410 crore as on June 2026 to INR 72,197 crore as on September 2026. On a Y-o-Y basis, retail term deposits have grown by 10% from INR 65,531 crore as on September 2025.
The Karnataka Bank is actively trying to consciously lower its dependence on expensive bulk deposits while making sure that most of the renewals are carried out at established card rates, which allows for better management of the total cost of deposits. CD ratio as on September 2026 stood at almost 80%, that is 79.93%, as compared to 78.45% as on June 2026 and 71.63% in September 2025. Net interest income. NII for Q2 FY 2027 stood at INR 982.44 crore as compared to INR 938.29 crore in Q1 FY 2027, registering a Q-o-Q growth of 5%. On a Y-o-Y basis, NII for Q2 FY 2026 stood at INR 728.12 crore, recording an 35% Y-o-Y growth. Net interest margin stood at 3.17% for Q2 FY 2027 versus 3.20% in Q1 FY 2027 and 2.72% in Q2 FY 2026.
Loan yields. Yield on advance for Q2 FY 2027 stood at 8.76% as compared to 8.68% in Q1 FY 2027, recording an 8 basis points improvement. Loan yields will be further strengthened by accelerating retail growth while stabilizing the corporate portfolio through high quality and better yielding assets. Cost of funds stood at 5.15% for Q2 FY 2027 as compared to 5.16% for Q1 FY 2027, registering a 1 basis point improvement.
The sequential quarter-on-quarter improvement in cost of funds is expected to be supported by our continued efforts to reduce the dependence on bulk deposits and replacing the same with retail deposits at card rates and focus on CASA buildup. At Q2 FY 2027, PAT stood at INR 435.89 crore as against INR 418.95 crore in Q1 FY 2027, with a Q-o-Q increase of 4%. There is an increase in PAT from INR 319.12 crore in Q2 FY 2026 with a Y-o-Y increase of 37%. Stressed assets.
Gross NPA percentage as on 30th September 2026 stood at 2.27%, as against 2.58% in June 2026, thereby showing an improvement of 31 basis points. The gross NPA percentage as on September 2025 was 3.33%, which is a 106 basis points Y-o-Y improvement. Net NPA percentage as on 30th September 2026 stood at 0.74% as against 0.87% in June 2026, demonstrating a 13 basis points Q-o-Q improvement. Net NPA percent as on September 2025 was 1.35%, recording a 61 basis points Y-o-Y improvement. The sustained quarterly improvement in both gross and net NPA ratios reflects the bank's stringent efforts to curb slippages and enhance the monitoring efficiency, supported by the functioning of regional collection centers and quality credit underwriting strictly following the guard rails. Credit cost is 0.002% for the quarter Q2 FY 2027, as against 0.03% in Q1 FY 2027.
Slippage was 0.11% for Q2 FY 2027, as against 0.14% in Q1 FY 2027. Standard restructured advances, including related accounts. As on 30th September 2026, it was INR 649.37 crore as compared to INR 762.62 crore as on 30th June 2026, recording a 15% quarter-on-quarter reduction, and standard restructure advances as on 30th September 2025 was INR 939 crore, registering a 31% Y-o-Y reduction. PCR. In line with the bank's commitment to increase PCR, the bank has continued making accelerated provisioning, and the PCR stood at 68.05% as of September 2026, as against 67.03% as of June 2026. PCR, including technically written off account, stands at 85.78% as of September 2026, as against 84.70% as of June 2026. Cost to income for the quarter ended 30th September 2026.
Cost to income ratio stood at 52.68% as against 55.14% for the quarter ended 30th June 2026 and 58.93% for the quarter ended 30th September 2025. The bank's focus on low-cost deposits along with an emphasis on RAM and high yield portfolios to enhance loan yields would further expected to improve our net interest income and support sustained control over the cost-to-income ratio in the coming quarters. Return on equity Q2 FY 2027. Return on equity stood at 12.51% as against 12.48% in Q1 FY 2027, as against 10.14% in Q2 FY 2026. Return on assets. Q2 FY 2027. Return on assets stood at 1.26% versus 1.29% in Q1 FY 2027, as against 1.03% in Q2 FY 2026. Liquidity coverage ratio, that is LCR. As on 30th September 2026, LCR stood at 164% versus 169% as on 30th June 2026, and as against the statutory mandate of 100%.
Capital adequacy ratio, 20.36% as on 30th September 2026, of which Tier 1, 19.20% and Tier 2, 1.17%, in comparison to 21.10% as on 30th June 2026. For the calculation of CRAR for September 2026, eligible profits as required under extant RBI guidelines have been considered. Products. We remain on track with our products' development and launch initiatives with a continued focus on bridging the remaining gaps in our product offerings. Agri schemes. We are actively exploring the introduction of input finance and other agricultural credit products across various crops covered under their respective boards, Spices Board, Coffee Board, Tobacco Board, Tea Board, Rubber Board, et cetera, supported by structured repayment arrangements. This is expected to enhance the bank's core agriculture portfolio, increase in small and marginal farmer advances, and ensure assured repayment and recovery through board-supported payment mechanisms. MSME products. Products launched during the period.
GST overdraft facility, loan against property for MSME, Dropline overdraft for MSME. Some of the products which are in various stages of implement, it is in the pipeline. They are incorporation of Dropline OD features to key MSME products, end-to-end digitization of key MSME products, KBL Startup Finance, a dedicated credit scheme for startups and emerging enterprises. Retail products. Products launch. Xpress Digi Gold Loan has been launched on 21st September 2026, marks a strategic milestone in the bank's digital transformation, delivering a seamless, secure, and faster gold loan experiences. This initiative is poised to expand customer reach, accelerate business acquisition, enhance operational efficiency, and unlock scalable growth opportunities, strengthening the bank's competitive position in the gold loan segment. Up to 90% funding on project cost for purchase of ready build under construction residential units. Products which are in the pipeline.
Limit enhancement in housing loan schemes, surrogate-based lending for housing and mortgage loans. Number three, digital document execution for vehicle loans. Number four, end-to-end portal for channel partners. Liability products. Capital Gains Account Scheme, a specialized account scheme to park capital gain funds to claim tax exemption. Number two, project in pipeline. Launch of Marketplace FD. ADC channels, alternative delivery channels. Products launch, UPI Help, My UPI. Unified platform enables customers to view their transaction history, raise and track complaints, manage UPI mandates, et cetera. Number two, PIN-less CBDC transaction. Customers can carry out CBDC transactions up to INR 200 per transaction without PIN, offering hassle-free experience. Trade Konnect, a digital platform for import, export, outward remittances. Projects in pipeline under ADC channel are revamp of retail internet banking with new UI and UX. Number two, UPI for NRI customers. Number three, Soulabhya Plus deposit enablement through digital channels.
Digital and technology. The bank is leveraging IT investments through modular and faster implementation of solutions. Bank is also exploring leveraging AI tools for improving internal efficiencies, including improving processes. Few major solutions that are launched and are now live. Digitization of gold loans, interest-bearing credit lines on UPI, SD-WAN, that is Software-Defined Wide Area Network, SD-WAN implementation, CDP, Common Data Platform, MuleHunter.AI, SalesBuddy, that is AI assistant. Few major solutions that are in progress. They are loan against mutual funds, shares under digital channel, secured credit cards, implementation of DPDP solution, new treasury application, new NPA management solution. The structural cornerstone of Karnataka Bank remains its resilient framework and capacity to capitalize on emerging growth opportunities.
Over the recent periods, we have secured meaningful milestones by scaling our retail and MSME business lines, optimizing deposit and borrowing expenses, and strengthening the overall health of our credit portfolio, thereby establishing a powerful baseline for persistent advancement. Our approach remains heavily anchored in practical execution with modern digital adoption with a human touch and tailored solutions already securing significant market traction. As these programs expand in scope, they are positioned to systematically enhance our interest spreads, bottom line returns, and core operational metrics in the coming quarters. in the face of international disruptions stemming from global friction and logistical blockages, the bank distinguishes itself by maintaining conservative risk boundaries, operational flexibility, and a deep focus on customer relationships. Armed with strong capital reserves, comfortable cash positions, and focused strategic implementation, we remain distinctly prepared to generate long-term value for our stakeholders.
Moving ahead, our defined blueprint and escalating commercial traction provide absolute certainty in our ability to maintain healthy expansion. Further, the bank is taking all required steps to efficiently mitigate risk in cyber and AI-related domains. We remain deeply committed to shaping a forward-looking corporate governance-anchored enterprise. As we honor our historical roots and steer through this rapidly transforming landscape, I want to express my sincere appreciation for your ongoing reliance and collaboration as we co-author the next phase of The Karnataka Bank. I would now like to hand over the call to the moderator for any questions and feedback from our callers that we would be glad to take.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Chirag Singhal with First Water Fund. Please go ahead.
Yeah. Am I audible?
Yeah. Good evening.
Good evening, sir. Congrats on a very good quarter. Just couple of questions from my end. First is on the NIM and ROA guidance for the rest of the year. If I look at the benchmark, the six-month T-bill, the yields have gone up in the last one and a half month. Is it fair to assume that the NIMs will be closer to the upper end of your target, 3%- 3.4% range that you have given in the PPT? It will be closer to that range, the upper end of the range.
That is one. You said two questions are there.
Yeah. I also wanted the ROA guidance for the rest of the year. I mean, H2, what are you seeing in terms of ROA? Second question was on the NIMs, again, NIMs which have declined on a sequential basis. If I look at the yields and cost of funds, they have improved on a sequential basis. Seemingly, the fall is only due to the others line under your interest income. What is there in that others line item which is under your interest income? Just wanted to understand that.
Yeah. NIM, as I mentioned earlier, that means last year and all, I was categorical in telling that the focus is on improving the NIM 3% plus and ROA 1% plus. You are aware, when I met you also, I have told very clearly that NIM has dropped to 2.72. ROA has dropped down to 0.72, from where we have taken it 3% plus in March and continuously maintaining that. Some basis points here and there, it happens because of average figures. Average figures, change in CASA, average cost of deposits, borrowing, some basis points. This is just 3 basis points difference. So also in ROA. But we are committed always to improve it further. But quarter-on-quarter, when we see here and there, some plus, some minus will be there. In the Q1, there was an item in the interest on income tax paid.
That was in the Q1, one of the items. Otherwise, barring that, NIM is always on the increasing only. So also ROA. Regarding another question you asked regarding what was that decline?
No. NIM decline, that you answered, the income tax thing in the previous quarter. My question is on the guidance for H2, NIM and ROA guidance for H2.
Yeah. ROA and NIM, as I mentioned, 3% + and 1% +, continuous improvement every time. That much only I can tell you. Continuously, we are maintaining, as I told you earlier also, it is 3%- 3.4%. So also ROA 1.1% + I said. It will be between 1.1%- 1.3%, 1.35%.
Okay. All right. That would be it from my end for now. I'll get back in the queue. Thanks.
Yeah. Thank you, Chirag.
The next question comes from the line of Yashwant Tippeswamy, an individual investor. Please go ahead.
Hi, sir. Good evening.
Good evening, Yashwant.
Yeah. I am sorry, I am driving, so you might hear some noise behind. I just want to put a couple of questions. The first one is with respect to the provisioning. This quarter, I think there was somewhere around INR 20 crores has been provided. Having said this, looking at the West Asia conflict and inflation, I was thinking that, was there any reason why we did not do an aggressive provisioning? Do you see the asset quality in a good shape? Is that the reason why we are not doing aggressive provisioning? That is first question. The second question is with respect to the number of branches. Do you foresee that we touching 1,000 branches by this financial year?
Yeah. Yashwant. Yeah. With regard to the aggressive provisioning you are telling, we are always aggressive in provisioning only. Last year around this time, March 25, if I remember correctly, it was 58%, and 1% every quarter we have committed. Taking that into account, in the last six quarter, 6% increase means it should have been 64 +, whereas we are at 68 or so. Therefore, continuously we are providing to the best possible extent, taking into account overall requirements and audit requirements and our internal strength to provide additional Provisioning. Regarding number of branches, yes, we have gone little bit slow in H1 because we are very cautious with regard to the premises rent. We do not want to compromise the location. We want to select the best location having commercial advantage, economically suiting to the bank's requirement.
Therefore, we have finalized around 24 centers and fixed the premises also, and 17 premises are under various stages of construction of safe room, interiors, and all are happening. Before December end, we will be adding minimum 15 branches, and as per the approved plan, corporate goal, we want to have 31 branches during this financial year. I am confident that all these 31 branches will be opened before March 31st. This also signals or whatever there in our mind, having an ambition of crossing 1,000 branches, this will happen during this financial year. Thanks for all the support from investors and all well-wishers. Thank you. Mr. Yashwant.
Thank you so much for putting the bank in the growth path, sir, and we continue to want to see the similar kind of consistency in the result. And you driving the bank in the difficult times of higher inflations and West Asia related economic issues. Thank you so much, sir.
Thank you very much.
Participants, in the interest of time and fairness to others, please restrict yourselves to one question. For any more questions, you may rejoin the queue. The next question comes from the line of Sarvesh Gupta with Maximal Capital. Please go ahead.
Good evening, sir. And congratulations on a good set of numbers. Sir, on the fee income, we saw some moderation in quarter two, despite disbursements going up. And on a year-on-year basis, I think it is still flat. So how do we see our fee income going forward?
Yeah. Fee income actually does not come down. We are able to maintain that. But taking into account Q1, there was one-off item. Q1 and Q4, there will be one-off item. I will tell you in advance itself. In the Q1, locker income and Q4, that card business we are doing, that income will be there always. Barring that, we have by and large maintained. By maintaining other income is not adequate. We are finding out various solutions, bringing out various solutions, which will add value by having fee-based income. All other income which are traditionally there, it is there. In addition to that, this mutual fund business platform and advance against shares and all, those will add value to the business. We are very much focused on that, on our fee-based income. Going forward, definitely, we are very optimistic that that also will be improved.
No, sir. On a Y-o-Y basis also, it is flat at INR 206, INR 207 crores, while we have seen significant increase in disbursements. So have we taken a call where we are not charging the fees on the disbursement that we are doing, or any other reason why it should be flat on a Y-o-Y basis also?
No, that is what I said. A lot of initiatives are in the various stages. As I mentioned too, I will add further, we have also some other solutions like credit card business and all. See, unless and until it is implemented, initially, there will be various stages of implementation. Some will happen immediately as per our target. Some gets postponed to the next quarter. We are focused on that. We are working on it. Flat income cannot be accepted at all. We have to grow. Traditional income and all, it has lost its importance. Whatever is there, we are in a competitive market. Definitely, we are exploring all these new areas and definitely, I'm confident.
And sir, can you break up the advances book into fixed and floating, and within floating, how much is T-bill linked and how much is repo linked?
By and large, it is all floating only. Fixed interest, very few fixed interest portion. This around 70%, it is EBLR, and there are deposit loans and other kind of loans where it is fixed loans. Other than that, by and large, T-bill rate is also there. Around 70%, you can take 70% + EBLR rate. MCLR is around 5% also. But majority is that. It is all linked to T-bill rate.
Entire 70% is T-bill linked?
Yeah.
Sir, then going forward, because we have seen a huge spike in the T-bill rate, when do you see your reset as per the reset clause? When does the interest rate increase on the yield side? Because in October month, we have seen a huge spike in the T-bill.
No, see, last year also, it is all bottomed out. Assets are repricing immediately within a gap of three months or so. Liabilities are not so. It will be having naturally an impact on the NIM. But it is already bottomed out during last year. Now, what I feel is since it is in the rock bottom, whatever up in the increase, definitely within three months it is getting repriced. I don't think it will affect with regard to When it is increasing, a trend has already begun. It is increasing also, you are aware. Therefore, I don't think it will further go down. Whatever repricing happened earlier, it has happened complete. Now either it will be stagnant or it will be going up. Signs have already shown that it started moving up.
That October spike on T-bill rate, we will get in the month of December, January like that. Is that right?
Normally on various days, within three months it is happening.
Okay, sir. Thank you and all the best and congratulations again.
Thank you. Thank you, Sarvesh.
The next question comes from the line of Pranay Dhelia with Panchatantra Advisors LLP. Please go ahead.
Sir, many congratulations on the best set of numbers that we have seen in a couple of years. You have performed on all operating levels that you promised when you took over. As for the future progress of the bank, I have one small question. All private banks have a very strong retention plan for employees by their ESOP level. We have found Karnataka Bank lacking on that one. Good people will only stick if you have a good ESOP plan. Has the board discussed this?
Pranay, good evening. You have raised a right point, but attrition rate in Karnataka Bank is very low. I am guaranteeing you, we are focused on retaining the talent, which we will not leave to go outside, and talented people, talented bucket is there with regard to the human resources, and with regard to this incentivization and all. It is already there. As and when these things are coming to us, definitely it is discussed, it is a matter of discussion in the board.
That's all that I had to ask on the question front. The first half we have seen has been fantastic. The second half will be better than the first half, sir?
This doubt you had earlier also, whether this growth is stable growth. Somewhere in the Q4 you asked, I said you wait for Q4 completion. You waited, and again you asked the same question in the Q1 of the current year. I said let the quarter be over. We gave better numbers than Q4 of last year. The Q2 of this year, still better we have given. Please have confidence on us. We will give better results in the coming quarters also.
Definitely, sir. Thank you so much. Wish you all the best, and Happy Deepavali to the entire board.
Thank you. Thank you also to your family also. Thank you very much.
The next question comes from the line of Jyoti Khatri with Ambit Wealth. Please go ahead.
Yeah. Thanks for taking my question, and congratulations, sir, for delivering a very strong set of numbers. Firstly, on the drought related thing. Maharashtra and Karnataka and one more state has been declared in a sort of drought. Do you anticipate some sort of impact coming to you in your agri book, agri gold loan book? How do you assess the current scenario and impact on your loan book?
Good evening, Jyoti. Thank you very much for coming online. Yes, you are right in asking that question. Scanty rainfall this year, no doubt about it. This rainfall in the previous quarter, some of our investors have asked this same question. I told then also, it is not new to us. Either there will be flood or there will be drought. We are not free from both. Very average rainfall, wherever it is depending totally on rainfall, it is very minimal. Today's scenario because of the irrigation facilities and all is there, but rain itself is drastically reduced this time. There are excessive rain in the northern part somewhere. All these are common. But we are very watchful. We are very on our guard. We take all monitoring system, everything is in place. Right now, I am not foreseeing any such serious problem.
Yes, problem, how long this drought condition will continue, or else suddenly there may be heavy rain also, flooding situation may be there also in the northeast monsoon time, which we do not predict right now. Right now, I don't think there is immediate serious problem.
Okay. Great, sir. Secondly, on the ECL provisioning side, have you assessed how much incremental provisions you will be required to make? Any assessment on that side?
See, we have CRAR 20.36% comfortably. But when this is going to come from 1st April 2027, we are continuously studying that. As this question was there on earlier occasion also, this 1%-1.5%, 1.75% impact may be there. That is what we are continuously working on that, and we have taken enough measures with regard to, you must have seen from the presentation also, recovery under NPA, controlling stress. Stress has improved a lot. To the extent of improvement in the stress also, the burden from the ECL will come down. We are guarding ourselves with regard to that, and there is additional as per the guidelines. It is not that even if this percentage, as I said, 1%-1.7%, still entire hit can be taken as per the requirement a bank can take, or it can be spread out to the five years also.
Which we are working on it, how to do that, depending upon the best numbers coming, we will plan it accordingly.
Okay. Is it that this amount can be adjusted in the net worth as well?
Pardon. Sorry.
Is it possible that, as per the RBI guidelines, I am not sure on that side, if this incremental provisioning that is required can be adjusted against the net worth?
That all it will be done as per the guidelines, whatever is available. Depending upon the bank's policy and regulator prescription, auditor's requirement, it has to be done with. We have no choice there. The provision is there.
Okay. Just one last question from my side. Your term is ending in November. Anything that board has decided whether you will be continuing ahead or a new one is coming in and what is the status on that side? If you can just give some color, I guess we will get a lot more clarity on that side.
The board is always proactively deciding whatever is required to be taken. They are taking the decision. Kindly wait and see. The decision will follow soon.
Okay. Thank you, sir.
Thank you. Bye.
The next question comes from the line of Sushil Choksey with Indus Equity Advisors. Please go ahead.
Congratulations to Team Karnataka for excellent performance. Sir, can you-
Thank you, Sushil ji. Good evening. Thank you.
Good evening. Sir, can you throw some light on the pipeline which is emerging for Q3 and Q4 between RAM and corporate book? Second thing, Make in India needs new businesses emerging out of India, be it defense, space, a lot of R&D related to pharma and many such, and Karnataka, Tamil Nadu leading the manufacturing hub for EV and many other such startups. Now all your peer banks are focusing that we lend more in the same states. How are we emerging better? To emerge better, what are we doing with our HR and digital processes, and to underwrite business that we garner a better share compared to our peers?
Yeah. Good evening and thank you, Sushil ji. Yes, what you said definitely makes sense for us. As I told you with regard to the growth in Q3 and Q4, definitely, yes, whatever we have planned, we are quite sure of achieving that. I was telling earlier also, I stand by it even today also, 15%-20% growth in advances. The sectors which I said, particularly RAM. RAM sector, under RAM, Agri, MSME, and other which are coming well within the definition of RAM. We have, with regard to our growth guidance, we are at 56% under retail as on date, and mid corporate 20%, large is 24%. This guidance was given earlier, we stand by it. From 56% retail to taking it to 60%, mid corporate from 20%- 22%, we want to reduce under large corporate from 24%- 18%.
As you know, it is maintaining all these while focusing on this various sector of be it pharma or some industries and all. If we want industries, we have to go to Tamil Nadu belt, as you rightly said. Our trading and other sectors coming to the north, agri and in Karnataka. All these are focused areas. I am quite confident, and for the past six to nine months, whatever we are targeting, by and large, it is going in the same direction. I am quite sure that whatever guidance we have given, we are meeting that.
Sir, for HR.
I am sorry to interrupt, Sushil. I would request you to rejoin the queue. Thank you. The next question comes from the line of Yash with Dante Equities. Please go ahead.
Hi, sir. Congratulations on a great set of numbers.
Thank you.
Just two points from my end. One is obviously H2 is always stronger for banks and all financial institutions. I think 55%-65% of your business comes in H2. Since you have already delivered such great numbers in H1, as a banker, what are your expectations going forward in H2?
We have committed, we have AOP, approved AOP. We have set that from 83,000 to 98,000 we have set. By and large, first quarter we have added business of around INR 5,000 crores. Second quarter, we have added around INR 10,000 crores. What we had planned entire year, adding around INR 33,000 crores of business, INR 15,000 we have added already, INR 18,000 crores of business we have to do it. I still maintain 10%-15% growth in liabilities, 15%-20% growth in advances. Overall growth, ultimately it will come. The growth rate is around 15%. We will stick to that, and we will try to make all efforts. Having achieved good numbers in H1, as you rightly mentioned, Q3 and Q4 are most happening quarters. I am quite sure that in the remaining these two quarters also, the progress will be rather crossing our expectation.
That much only I can tell you at this juncture.
Right. Sir, are there any major recoveries that we are expecting or anticipating for H2? Point number one, and can you talk more about asset quality and credit cost moving towards H2? Because again, based on your performance in this quarter, things are looking great asset quality-wise. You have slowly increased your PCR to a decent level. Please give us more commentary on asset quality going forward in H2, because I think some participants also raised concerns with agri and tractor loans in other banking con calls. I just want more commentary on asset quality.
As I mentioned earlier, in my previous quarters also, I have told we have zero tolerance for NPA as well as stress. From that, taking that as a focused area, we have been working through our team, national team, and 15 teams spread over collection teams, which are spread over to 15 regions. We have effectively controlled the stress and slippage ratio. GNPA and NNPA, while improved substantially 3.40% as on 31 March , 2025, it has come down to 2.27 as of date. So also NNPA ratio, which was 1.40% as of 31 March , 2025, has come down to 0.74. Quarter-on-quarter, there is an improvement. How it was possible is controlling the stress only. When we control the stress, slippage also will automatically come down. Main focused area is to control the stress only. When the stress is controlled, slippage comes down.
That is why our gross slippage ratio has come down from earlier. It was September 2025, if you see, it was 0.86, and it has come down to 0.11. So also, net slippage ratio, which was as high as 0.75 in September 2025, came down to 0.11. In terms of absolute numbers also, stress has come down. The main focused area is that only. Therefore, going forward also, I am quite sure that there is no threat as far as stress is concerned. See, something beyond our control will be there. You asked one more question with regard to recovery. Yes, some recovery, what happens, we are hopeful of recovering in the same quarter. It gets migrated to the next quarter. Sometimes it is because of various reasons. In the previous quarter also, we were expecting some major recovery. Had it happened, it would have been much, much better.
But if it has not happened in Q2, it will definitely happen in Q3. Definitely, numbers will further improve. Some major one or two accounts are also there. With that, GNPA as well as NNPA also going to improve further.
Right. Is it possible for you to talk about the size of these recoveries in Q3?
See, size recovery is a continuous effort. Sometimes suddenly some recovery which we have not anticipated also will happen. As I told you, in the Q2 it should have happened, it will happen surely in Q3. Sometimes it will happen immediately, sometimes it takes a little longer time. This Q3 will be big number will happen, kindly wait and watch. Whatever assurance I have given, I was able to maintain that. Kindly wait and see.
No, that's great. I think I got all the assurance that I really wanted. Based on your-
Sorry to interrupt, Yash. I would request you to rejoin the queue. Thank you. The next question comes from the line of Shruti Agrawal with Narnolia Financial Services. Please go ahead.
Hello. Congratulations on this set of numbers, sir.
Good evening, Shruti.
My question is, sir, operating profit grew 36.8% Y-o-Y to INR 602 something crore. How are technology investment, IT platform upgrades, and digital onboarding platforms impacting OPEX? If you can guide on cost to income ratio for going forward.
Cost to income. Thank you very much, Shruti. Operating income, no doubt, has gone up 37%. We want to increase the operating income through various measures, including improving the other income, interest income, everything. Also cutting the cost and taking all leverages of IT. See, IT is one area where continuous investment is required, and we have seen and assessed out of INR 100 invested, everything is not available for the purpose of business. 40%-50% is going for licenses and upgrades. Another 20%-25% for regulatory and compliance requirement. Around 25%-30% is available for business. Suddenly, you cannot expect that everything will get converted into return on IT. It is a continuous effort. We are doing that. We are focusing on that. A lot of investments we are doing every year. We are budgeting. A couple of major investments also going this financial year also.
While I am telling, while investing in IT, we should also focus on how to improve our operational efficiency is a challenge. Either we have to do the increased business, or we have to generate fresh income or reduce the expenditure. No doubt about it. Therefore, this IT investment through digital journey, AI, some areas we have focused, three, four areas we have focused, definitely that benefit will come. While telling that, since you mentioned about cost to income, if you see Q4 of 2025, the cost to income ratio was as high as 66%, and that is Q4 standalone. The entire year, it was at 60%. Continuously, we have focused, we have brought down. Now it is standing at 54%, a 2% improvement compared to the previous quarter. We are completely focused on that. We are totally leveraging technology to the business. That much assurance I can give you.
And guidance is, yes, we are as per the guidance. It is 52% or 51%. We will focus on that. Sometimes the result will happen immediately, like recovery of NPA. Sometimes it gets postponed to the next quarter. Definitely, we will take the full advantage of that.
Okay. Thank you, sir, and all the best for the coming quarters.
Pardon? Hello?
Sir, she said thank you.
Okay. Thank you.
The next question comes from the line of Saket Kapoor from Kapoor & Company. Please go ahead.
Yeah. Namaskar, sir. Hope I'm audible.
Yeah. Good evening, Saket. Thank you.
Yeah. Good evening, sir. Sir, as you were alluding that we are looking for our advance growth in the vicinity of 15%-20% for H2, I just missed your comment on the same. Can you reiterate what is the advance growth? Or if you could just outline to us what is the NII growth that we may look forward for the remaining part of the year or for H2?
See, we have continuously focused on an average growth of 15%-20% in advances throughout the year.
Correct.
As I mentioned to somebody else while replying to the query, the most happening quarters are Q3 and Q4. When we have generated some good numbers in Q1 and Q2, I am quite optimistic that in Q3 and Q4 also, we will be able to do much better than the Q1 and Q2. Since 15%-20% growth in advances will give average of 18%-19% YOY growth, we are focusing on that, and I cannot give you big number and deliver much less than that. No, we are very much. Therefore, I said on an average 15% growth in business, while in advances 15%-20%, that we are committed and we are hopeful we will achieve. So also the end result, that NIM, NII, everything is depending upon achievement of that target.
We are focusing on RAM segment while maintaining our business share in that composition of retail, mid-corporate, and corporate. Right now, we are in retail 56%, mid-corporate 20%, large 24%. Retail, we want to have a share from 56%-60%, mid-corporate 20%-22%, and as a policy, we want to reduce the dependence on bulk. We want to reduce from 24%-18%. These are the broader guidelines or guidance which we have.
Okay. Sir, when we look at our treasury portfolio, I think for this quarter, even our treasury income must have been affected because of the hardening of the 10-year and the higher G-Sec yields. What has been the impact on our treasury portfolio because of the hardening of the yields?
No, we are working cautiously. We are duly taking into account the cost benefit analysis. We are very careful. With regard to the funding arrangement also, we have adequate measures available with us. We have planned. ALCO is meeting regularly, and we are working out in bits and pieces, everything. HFT portfolio, we have investment portfolio itself in total 27,000 crores. Therefore, HFT portfolio is also very small. We will not be affected too much. We are cautious. We will be moving very cautiously.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the MD and CEO, Mr. Raghavendra S. Bhat, for the closing remarks.
Yeah. Thank you, Alaric. Yes, as we wrap up today's call, I am glad to reiterate our unwavering commitment to shaping a forward-looking, governance-driven institution that honors its historical roots while successfully navigating this fast evolving era. By continuing to scale our retail and MSME lines while optimizing funding costs, we are completely certain of our ability to maintain this healthy growth momentum and deliver long-term value to our stakeholders. Thank you once again for your insightful questions, your continued reliance, and your invaluable collaboration in charting the next phase of Karnataka Bank. Thank you very much to everyone. Particularly, thanks to Mr. Alaric. Thank you.
Thank you so much, sir. Ladies and gentlemen, on behalf of The Karnataka Bank, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.