Karnataka Bank Ltd Q4 FY2026 Concall Summary

Key Takeaways

• Guidance delivered across the board: The bank met every metric it had previously committed to, from total business and NIM to asset quality and cost-to-income, capping a year where full-year PAT hit a record INR 1,310.50 crores.
• NIM crossed 3% and management says it has bottomed: NIM improved to 3.07% from 2.92% QoQ, driven by a better loan mix and lower cost of funds, and the bank is now working to sustain it above 3%.
• Asset quality improved sharply, with slippages nearly halving: GNPA fell 54 bps QoQ to 2.78% and slippages dropped to 0.20% from 0.47%, helped by tighter entry-level credit selection and focused recovery efforts.
• The growth engine is pivoting to retail and mid-corporate: Management explicitly stated future growth will come from retail and mid-corporate only, consciously reducing bulk advances, though 65% of this quarter's incremental growth still came from corporate.
• What to watch next quarter: Whether the INR 2,000 crores of sanctioned-but-undisbursed advances convert into on-book growth, the pace of the retail credit center ramp-up, and any quantification of the ambitious 50% recovery target from the NPA and technical write-off books.

Profitability & Margins

• NIM recovery: NIM crossed 3% in Q4, improving from a low of 2.72% earlier in the year, driven by a 7 bps QoQ rise in yield on advances to 8.78% and an 8 bps QoQ improvement in cost of funds to 5.38%. Management believes NIM has bottomed out and may not fall further unless the EBLR moves.
• Portfolio remix helped yield: The bank replaced around INR 2,350 crores of low-yielding IBPC and Food Credit portfolio with higher-yielding loans during FY26, bringing that low-yield book down from INR 4,057 crores to INR 1,707 crores.
• Cost-to-income improved sharply: Q4 cost-to-income fell to 50.47% from 58.72% QoQ, and the full-year ratio improved to 56.34% from 60.11%, driven by cost rationalization and a focus on high-yield portfolios.
• Employee cost dropped to a multi-year low: Employee cost fell below INR 300 crores in Q4, the lowest in 13-14 quarters, primarily due to an actuary revaluation of the gratuity pool and natural attrition of 50-60 superannuations per month with no recruitment in Q4.
• Other income spike had one-time elements: Other income rose sharply on fee-based income and recovery from the INR 2,500 crores technical write-off portfolio, plus a recurring Q4 ATM card one-time fee. When pressed on the magnitude of the core fee income jump, management did not fully break down the components.
• Operating profit improved on lower costs: Operating profit before provision rose from INR 1,827 crores in FY25 to INR 1,974 crores, with the improvement largely driven by lower employee cost rather than core revenue expansion.

Raghavendra Bhat: "The results we announced yesterday reflect sustained momentum which we have built day after day and quarter after quarter."

Asset Quality & Recoveries

• GNPA and NNPA both improved materially: GNPA improved 54 bps QoQ to 2.78% and NNPA improved 33 bps QoQ to 0.98%, with the provision coverage ratio excluding technical write-offs rising to 65.39% from 61.23%.
• Slippages fell sharply: Gross slippages dropped to INR 147 crores in Q4 from a run rate of INR 250-300 crores, attributed to focused efforts on controlling SMA/CMA accounts, better borrower selection at the bank's 15 loan sanctioning centers, and recovery from restructured advances.
• Recoveries accelerated: Recoveries increased to INR 150.46 crores from INR 114.18 crores QoQ, and the bank aims to increase its PCR by 1% every quarter, having exceeded that pace this quarter.
• Ambitious recovery target set: Management aims to recover 50% of the NPA book and 50% of the technical write-off book, a target it acknowledges is "highly ambitious," with no specific quantum or timeline provided for FY27.

Raghavendra Bhat: "Our aim is always to recover 50% of the book of NPA, 50% of the technical written-off. What happens, we have to wait and see because we are working on it. This is a highly ambitious target, I know."

Business Growth & Loan Book Strategy

• Highest-ever aggregate business: Total business reached INR 1,92,118 crores, with 8% QoQ growth in gross advances and 4% QoQ growth in deposits.
• Growth composition tilted corporate this quarter: 65% of incremental growth came from corporate, while retail and MSME remained flat because the bank had previously degrown its overall book and retail credit centers only started operating from October onwards.
• Strategic pivot to retail and mid-corporate: Management was explicit that future growth will come from retail and mid-corporate only, with a conscious reduction in bulk advances. Retail, Agri and MSME grew 4% QoQ, led by Housing, Agri, Gold and Vehicle Loans contributing INR 1,547 crores of growth. Mid-corporate advances grew around 13% QoQ.
• Sanctioned pipeline awaiting disbursal: As of March, INR 2,000 crores of advances were sanctioned but pending disbursal for various reasons, with disbursals starting post-April, providing near-term visibility.

Raghavendra Bhat: "Growth has to happen in this sector only. For me, growth should come from retail and mid-corporate only. Going forward, consciously, we will reduce the bulk advances and we will grow in retail and mid-corporate."

Deposits & Funding

• CASA ratio improved meaningfully: CASA ratio rose to 33.61% from 31.53% in December 2025, with absolute CASA deposits growing 11% QoQ, driven by a calibrated focus on low-cost deposits.
• Bulk deposit dependence reduced: Bulk deposits as a percentage of total deposits fell from 4.8% to 4.2%, and as a percentage of term deposits from 7.1% to 6.3%, aligning with the strategy to optimize cost of funds.
• Cost of funds improved: Cost of funds improved 8 bps QoQ to 5.38%, supported by the CASA improvement and retail term deposit optimization.

People, Costs & Operating Model

• Headcount declined through attrition: Employee numbers fell in Q4 as retirements of 50-60 per month exceeded recruitment, with no hiring in Q4 after earlier recruitment for 31 new branches in H1 and Q3.
• Employee cost outlook is vague: Management stated employee expenses cannot be reduced and may rise with business expansion, but gave no range for FY27, assuring only that costs "will be under control" and that IT will be leveraged to absorb additional workload.
• Executive Director being recruited externally: The bank has nominated and is in the process of getting an Executive Director from outside, filling a position that had been vacant for 9-10 months.
• Retail credit centers now operational: Retail credit centers started from October onwards to drive retail growth, a structural enabler for the stated pivot toward retail assets.

Guidance & Commitments

Key Metrics