Anand Rathi
Target: ₹60
CMP: ₹43.25
Higher margins and lower opex led to sharp, nearly 21 per cent y-o-y, PPOP growth for Karnataka Bank. The standstill on NPA recognition led to its asset quality and PCR improving. Its earnings are expected to pick up in FY22 with limited downside from current levels.
The bank’s moratorium book came down to about 11.4 per cent in September 20 (from about 51.2 per cent in June 20). The reduction was largely on account of repayments, ie, recovery of one EMI in September 20. Management expects this book to come down below one per cent by December.
Asset quality may come under stress in H2FY21. GNPA sequentially improved 6 bps as slippages were negligible given the standstill on NPA recognition by the Supreme Court. Consequently, ₹92 crore could not be recognised as NPA during the quarter. The bank expects 2 per cent of overall loans to be restructured , 0.5-0.6 per cent to slip to NPA.
Given the weak economic environment and the pandemic-related disruptions to continue for the next couple of months, we expect delinquencies to be higher than what the management spoke of. Higher slippages may keep credit elevated in the medium term.