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Karnataka Bank Net Profit Up By 11%, Net NPAs Rise to 2.6%: Result Analysis


When the banking sector is going through turbulent times due to NPA, Karnataka Bank has somehow managed to stay profitable and have posted net profits of 121.54 Crs, up by 11.16% YoY.
When banks like Canara and Syndicate are struggling to give positive growth compared to last year same quarter, Karnataka Bank has managed to post 11.16% growth in net profit and income increase of 6.44%. 

Major Analysis:

  • The interest earned from advances has remained at same level, despite the increase in advances, mainly because of base rate cuts. The major revenue increase came from other income (174 Crs), an increase of 46% YoY.
  • Operating Margin increased marginally by 50 basis point from 17.72% for Q1FY16 to 18.25%.
  • Karnataka Bank has paid only 3.2% of its PBT as taxes, where as for the same quarter last year, they had paid 11.22% of PBT as taxes, indicating they will be coughing up more profits to compensate for taxes in coming quarters.
  • Gross NPA  are comparatively contained, Gross NPA grew by 3.43% and the advances grew by 3.28%.
  • Another interesting thing to look at is while Gross NPA grew by 3.43%, net NPA grew by 4.26% from last quarter, indicative of more sub standard loans slipping into bad debt, and lower provisioning.
  • Provisioning has been increased by 21.16% compared to last quarter. This isn’t enough though, since Net NPAs grew faster than Gross NPAs.
  • The advances grew by 11.47% YoY and deposits by 10.66%.

Future Projections

  • Bank in its press release has stated that, for the current year the bank will try to achieve a target of Rs 39,500 Cr advances from its current position of Rs 34,946 (an increase of 13.03%) and also increase its deposits from current level of Rs 51,501 Crs to Rs 56,500 Crs (upside of 970%)

Karnataka Bank Q1FY17 Results
The stock which opened at Rs 153 on the results day, closed at 146.60, down by 4.18%, after a dissapointment in terms of earnings growth and NPAs.
Karnataka Bank Q1FY17 Share Price Movement

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Disclosure: The authors at Capital Mind have positions in the market and some of them may support or contradict the material given above, or may involve a direction derived from independent analysis.


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