Karnataka Bank to keep NPAs below 5%

At a time when the banking sector in India is reeling from a burgeoning burden of bad loans, Mangaluru-based private sector lender Karnataka Bank is hopeful of containing its gross non-performing assets (NPAs) below 5 per cent in the current fiscal year and doesn’t see further slippages in its corporate accounts.

With a healthy net interest margin (NIM) of above 3 per cent, the bank is also planning to reduce its cost of capital to less than one per cent from the current level of around 1.25 per cent. “As of now, even with the proactive disclosures of NPAs, our gross NPAs remain well below 5 per cent. It will never cross that level and gradually, the slippages could be in the range of less than one per cent and credit cost may be less than one per cent,” CEO & MD of Karnataka Bank Mahabaleshwara MS told Business Standard.

Notably, net profit of the private sector lender slumped by 92 per cent to ~110 million for the fourth (January-March) quarter of FY18 due to multifold jump in provisioning for bad assets. While gross NPAs rose to 4.92 per cent by the end of March 2018, net NPAs increased to 2.96 per cent.

Giving the rationale behind such higher provisioning, Mahabaleshwara said the bank didn’t have many defaults from its corporate accounts but took the opportunity to clean up its balance sheet in the wake of a changed NPA recognition norm. “There was actually no pain in the sense that we have exposure to some corporates through the consortium. With a change in the NPA recognition norm, we had to recognise a few of those accounts as NPAs because of default by these groups on loans from other banks. We took this opportunity to clean up our balance sheet and make adequate provisions,” said Mahabaleshwara.

“We have declared more than ~5.90 billion as NPAs and an equal amount, we have also provided for. So, we further strengthened our balance sheet. Chances of further slippage appears to be very remote,” Mahabaleshwara added.

He said stress in its entire portfolio was over and the bank would see higher business growth in the current financial year. “We have already put a strong foundation for our future growth by cleaning up the balance sheet. If you see, in FY18, when the credit growth for the industry was around 8 per cent, we grew by 28 per cent. So, for the current year also, I am optimistic about attaining a growth rate of 20 per cent in advances. And, overall bank deposit is also likely to grow by 18 per cent,” Mahabaleshwara said.