[T.S.R:16059] Karnataka Bank-Steady Business, Better Margins

Net profit up 75.7%. Robust growth in net interest income (151.6% yoy) and non-interest income(18.8% yoy) aided net profit growth. We expect better margins, higher fee income potential and productivity to drive RoE expansion to 16% in FY13, from 9.9% in FY10. Steady business growth and improving margins. Karnataka Bank's advances grew 25.6% yoy, faster than the system, mostly in the retail and SME categories. Deposits at 16% yoy continued to grow slower than advances, perking up the credit-to-deposit ratio to 62.6%. Reported margins improved 26bp qoq to 2%, led by the rising CASA share of 25.6% compared to 22.5% a year ago. Productivity and fee improvement. Cost-to-income improved to 62.7% in 2QFY11 compared to 93.9% in 2QFY10, led by higher core income and better branch & employee productivity. Fee income improved 37.9% yoy due to higher non-fund-based and third-party income. Conservative provisioning norms. Credit cost increased 13.5% yoy for 1HFY11 due to the bank's conservative provisioning policy. NPA coverage increased 90bps yoy to 70.6%, which is likely to protect the bank against additional defaults. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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