Karnataka Bank Limited-R-16092019 PDF
Karnataka Bank Limited-R-16092019 PDF
Karnataka Bank Limited-R-16092019 PDF
Rationale
The rating on the Rs. 200.00 crore Lower tier-II bond programme is withdrawn as the instrument has been fully
redeemed and there is no amount outstanding against the rated instrument. The rating on the Rs.80.00 crore Basel-III
compliant tier-II bond programme is withdrawn, at the request of the bank, as the instrument was not placed and there
is no amount outstanding against the rated limit.
The rating re-affirmation continues to factor in KBL’s established retail franchise in Southern India which provides access
to core retail deposits with retail term deposits accounting for 72.2% of the total deposits and share of current accounts
and savings accounts (CASA) of 27.4% as on June 30, 2019; its comfortable liquidity profile with liquidity coverage ratio of
241.1% as on June 30, 2019 and no negative cumulative mis-matches in its structural liquidity (in June 2019) across
maturity buckets up to 1 year. Near term capital profile is adequate with Tier I capital of 10.7% as on June 30, 2019,
however the bank would have to improve its capitalization for the envisioned growth in FY2020-FY2021 to maintain
adequate buffer over regulatory capital requirement.
The rating, however, remains constrained due to persistently moderate asset quality numbers with GNPA% (gross non-
performing asset / gross advances) and NNPA% (net non-performing asset / net advances) of 4.6% and 3.3% as on June
30, 2019, (4.9% and 3.0% respectively as on March 31, 2018). ICRA notes that the bank’s provision coverage (cumulative
provisions / GNPA) and solvency ratio (NNPA/Net-Worth) continues to remain subdued at 26.6% and 29.5% respectively
(as on June 30, 2019). Stress in asset quality led to high credit provisions which resulted in subdued profitability (profit
after tax / average total assets) of 0.6% for FY2019 and 0.5% for FY2018. Further, with high regional concentration in
Karnataka (accounting for 43.4% of advances and 62% of branches as on March 31, 2019) the bank is susceptible to any
regional event related risks. Going forward, the bank’s ability to control incremental slippages, increase provision cover
and making effective recoveries would be crucial.
1
Key rating drivers and their description
Credit strengths
Credit challenges
Rating sensitivities
Positive Triggers: ICRA could upgrade the above long-term rating if the bank demonstrates a sustained improvement in
it’s profitability and solvency ratios. Key metrics that could lead to an upgrade for the bank are (1) Return on average
total assets of above 1.0% on sustained basis; (2) Net non-performing asset / CET-I below 20.0% on sustained basis.
Negative triggers: The bank’s above-mentioned ratings could face downward pressure in case of continued subdued
profitability, further deterioration in asset quality and delay in raising capital in timely manner. Key metrics that could
lead to a downgrade for the bank is (1) Return on average total assets of less than 0.5%; (2) Net non-performing asset /
CET-I crossing 35.0%.
Analytical approach
Analytical Approach Comments
Applicable Rating Methodologies Rating Methodology for Banks
Parent/Group Support Not Applicable
Consolidation/Standalone Not Applicable
For Q1 FY2020, the bank reported a net profit of Rs. 175.4 crore on a total asset base of Rs. 78,949.4 crore as on June 30,
2019 (compared to net profit of Rs. 163.2 crore for Q1 FY2019 on a total asset base of Rs. 70,603.2 crore as on June 30,
2018).
For the financial year FY2019, the bank reported a net profit of Rs. 477.2 crore on a total asset base of Rs. 78,633.6 crore
as on March 31, 2019 (compared to Rs. 325.6 crore in FY2018 on a total asset base of Rs. 69,957.5 crore as on March 31,
2018).
3
Key financial indicators (audited)
FY2018 FY2019 3M FY2019 3M FY2020
Net interest income 1,858 1,905 469 495
Profit before tax 310 608 147 149
Profit after tax 326 477 163 175
Net advances 47,252 54,828 47,731 52,819
Total assets (net of revaluation reserves) 69,958 78,634 70,603 78,949
4
Rating history for past three years
Current Rating (FY2020) Chronology of Rating History for the past 3 years
FY2020 FY2019 FY2018 FY2017
Instrument Amount Amount 16-
Type 24-September 21-March 16-February 26-July 18-January
Rated Outstanding September
2018 2018 2018 2017 2017
2019
Long [ICRA]A [ICRA]A [ICRA]A [ICRA]A [ICRA]A [ICRA]A
1 Lower Tier-II Bonds 250.00 250.00
term (Stable) (Stable) (Stable) (Stable) (Stable) (Stable)
Short
2 Certificate of Deposits 3,000.00 3,000.00 [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+
term
Basel III Compliant Tier Long [ICRA]A(Hyb) [ICRA]A(Hyb)
3 720.00 720.00 - - - -
II Bonds Term (Stable) (Stable)
Fig in Rs. Crore
5
Annexure-1: Instrument details
Amount
Date of Issuance Coupon Maturity Current Rating
ISIN No Instrument Name Rated
/ Sanction Rate Date and Outlook
(Rs. crore)
27-09- [ICRA]A (Stable);
INE614B08013 Lower Tier-II Bonds 27-09-2008 11.25% 200.00
2018 withdrawn
17-11-
INE614B08021 Lower Tier-II Bonds 17-11-2012 11.00% 250.00 [ICRA]A (Stable)
2022
Certificate of 7-365
- NA NA 3,000.00 [ICRA]A1+
Deposit days
Basel III Compliant 16-11- [ICRA]A(hyb)
INE614B08039 16-11-2018 12% 400.00
Tier II Bonds 2028 (Stable)
Basel III Compliant 18-02- [ICRA]A(hyb)
INE614B08047 18-02-2019 12% 320.00
Tier II Bonds 2029 (Stable)
[ICRA]A(hyb)
Basel III Compliant
- - - - 80.00 (Stable);
Tier II Bonds
withdrawn
Source: Karnataka Bank Limited
6
Analyst Contacts
Karthik Srinivasan Mr. A.M. Karthik
+91 22 6114 3444 +91 44 4596 4308
karthiks@icraindia.com a.karthik@icraindia.com
Relationship Contact
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com
info@icraindia.com
Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.
7
ICRA Limited
Corporate Office
Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002
Tel: +91 124 4545300
Email: info@icraindia.com
Website: www.icra.in
Registered Office
1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001
Tel: +91 11 23357940-50
Branches
ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of
surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capability of the issuer
concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA
office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to
be accurate and reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it.
While reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any
kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such
information. Also, ICRA or any of its group companies may have provided services other than rating to the issuer rated. All information contained
herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication
or its contents