Karnataka Bank

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Hopeful of double-digit credit growth in FY22- Karnataka Bank

Edited excerpts of an interview with Mr Mahabaleshwara MS, Managing Director & CEO, Karnataka Bank Ltd; dated 16th December 2020 from CNBC TV 18:

Karnataka Bank has no plans of raising capital right now but will consider it at an appropriate time.
The bank is comfortable with the current capital position and is at a comfortable position of 13.08% capital adequacy ratio (CAR).

Going forward the Bank has also assessed the impact of COVID-19 and there will not be any negative impact, according to him. Karnataka Bank has been maintaining a CAR varying in between 12-13.3%. So, considering that, the position is comfortable. But at the appropriate time, all banks are evaluating to take a stand in further strengthening the capital. So, the Bank will also take an appropriate stand going forward if required. The growth capital & stress capital both are in comfortable space according to the Bank’s internal assessment.

On asset quality, Mr Mahabaleshwara said that he had estimated about 2-4% of the Bank’s loan book to be converted under the one-time restructuring (OTR) scheme. So this is on the expected lines because the Bank has to identify all those accounts by December 31. That exercise is going on and he is sure that it will be within that range itself. The moratorium book will be somewhere around 1% by the end of December-20 as estimated earlier from 11.6% in September-20 of the total loan book.

The Bank’s strategy is to conserve, consolidate & emerge stronger. It would be focusing on the bottom line rather than the top line. Mr Mahabaleshwara does not expect credit growth to be more than 2-4% for FY21E. However, he said that for FY22E, the credit growth could be in double digits.

Mr Mahabaleshwara expects the average net interest margins (NIMs) to be more than 3%. Comfortable margins will be ensured with an increase of retail loans and a reduction in corporate exposure in loans. Digital sanctioning is in focus currently for the loans.

Post moratorium stress is much lower than the pre-Covid level for the bank. Slippage ratio is expected to be at 1-2% levels, he added.

Consensus Estimate: (Source: market screener website)
The closing price of The Karnataka Bank was ₹ 58/- as of 17-December-2020. It traded at 0.30x/ 0.28x the consensus Book value per share estimate of ₹ 191/204 for FY21E/ FY22E respectively.
The average consensus target price of 50/- implies a PB multiple of 0.2x on the FY22E book value of ₹ 204/-.

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