Karur Vysya Bank - Asset Quality Stable, Core Earnings Muted; Result Update Q2FY15 :: Edelweiss, PDF link

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Karur Vysya Bank’s (KVB) Q2FY15 PAT of INR 90 cr (up 9% YoY) was below our estimates, mainly due to muted loan growth and higher NPA provisions. Key highlights were: 1) core NII growth was 13% YoY largely led by loan growth of 11% YoY 2) slippages were curtailed at INR 1.6bn (1.8% vs 2.4% in Q1FY15); GNPAs remained stable at 1.4%, with calculated coverage maintained at 75%. Restructuring was marginally higher QoQ at INR 1bn (4.5% of advances) 3) cost/income ratio increased by 290bps to 56% QoQ owing to lower net income growth (up 3.4% QoQ).

Loan growth muted, NIMs stable

KVB’s advances growth was muted in Q2FY15, expanding by 11% YoY and 2.5% QoQ to INR 35,521 cr. Although loan growth was more broad-based and across segments, traction was higher in Corporate and Retail segments. Deposits grew by 3% YoY to INR 44,862 cr. CD ratio improved by 300bps to 79% QoQ.  CASA deposits increased by 0.8% QoQ to 22%. NIMs declined by 6bps to 2.67% on QoQ basis largely on account of higher cost of funds QoQ. The cost of funds increased by 7bps to 8.3% QoQ and the yield on funds remained flat QoQ at 10.4%. Core net interest income (NII) growth was muted at 13% YoY. Going forward, we expect NIMs to remain in the range of 2.7% to 2.9%.

Slippages improve, marginal rise in restructuring

KVB’s Q2FY15 GNPAs increased marginally QoQ to 1.4% vs 1.3% and NNPAs remained flat QoQ at 0.6%. Slippages were lower at INR 160 cr (1.8%, INR 60 cr slippage from restructured book). However, lower recoveries/upgrades at INR 55 cr pushed GNPLs to INR 481 cr (up 7% QoQ). There was fresh restructuring of INR 108 cr, taking the restructured pool to 4.5% of advances. The management mentioned that 3-4 accounts are in the pipeline worth INR 100 cr. The provisioning coverage ratio (PCR) stands comfortable at 75%.

LINK

https://www.edelweiss.in/research/Karur-Vysya-Bank--Asset-Quality-Stable,-Core-Earnings-Muted;-Result-Update-Q2FY15/10005166.html