The Karnataka Bank Limited (KTKBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Karnataka Bank Q4 FY '21 and FY '21 Earnings Conference Call hosted by Monarch Networth Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aalok Shah from Monarch Networth Capital Limited. Thank you, and over to you, sir.

Thank you, Aman. And good evening to all on behalf of Monarch Networth. We welcome you for Karnataka Bank's Q4 FY '21 and FY '21 results. As you know, from the bank, we have the MD and CEO, Mr. Mahabaleshwara M.S.; the COO, Mr. Balachandra Y.V.; the CFO, Mr. Muralidhar Rao; and Gokuldas Pai, who's the CBO; and other senior management team. Without taking much of your time, I would request Mahabaleshwara, sir, for his initial comments [ before we proceed to ] Q&A question. Thank you, and over to you, sir.

Thank you, Aalok. And good evening, and welcome to all of you for this con call of Karnataka Bank for the quarter ended and year ended March 31, 2021. Friends, the year ended March 31, 2021, was definitely a one-off sort of year as the entire world witnessed challenging economic conditions and also the associated uncertainties on top of COVID-19 pandemic. Fortunately, for us at Karnataka Bank, as we chose the path of being conservative and cautious at the very first sight of the COVID-19 pandemic problem, this year turned out to be a special year for us in terms of our performance. As the detailed analysis of the performance, I mean, these results have already been uploaded, and you might have already glanced through this. Our operating profit year-on-year, it went up by 20.67%; and the net profit also went up by, annually, 11.76% and reached a new high of INR 482.57 crores. Most importantly, during this just concluded year, we focused more on further strengthening the balance sheet and of course on asset quality. As far as balance sheet strengthening exercise is concerned. The first thing, what we focused, was on further improving the capital to risk-weighted asset ratio. In fact, the minimum stipulation, stipulated CRAR, by the Reserve Bank of India is 10.875%. Last year, our CRAR was at 12.88%. And this year, we have further improved to 14.85%. Similarly, we also focused on PCR. PCR last year, it was at 64.67%. And the current year, it is further improved to 70.05%. And as far as the asset quality is concerned, both the GNPAs and the NNPAs, they have moderated. As our GNPA, which was at INR 2,799 crores about a year back, has now improved to INR 2,588 crores in absolute terms. That means, in absolute terms, there is a reduction of INR 211 crores in the GNPA during this, the COVID-19 pandemic-affected year. As well as if you look into the NNPA. So it has come down from INR 1,755 crores to INR 1,642 crores as at March 31, 2021. Thereby, NNPA is reduced by INR 113 crores. This is in terms of absolute numbers. But if you look into the percentages, both the GNPA as well as NNPA, there is about nearly 10 basis point increase. This is mainly on account of denominator factor. That means our overall loan book has come down by around 9%. This 9% reduction is, again, on account of reduction of [ extra slack ] that we had in the large corporate advances. In fact, our large corporate advances has shown a deep growth of around 55%, whereas the retail and the mid-corporates, they have grown by 6% and 7%, respectively. On account of this, the retail loan book, which was at 45% of the total loan book about a year back, has improved to 53%; and the mid-corporate loan book, also, we have improved from 29% to 34%. And the large corporate loan book had come down from 26% about a year back to 13% as of March '21. Of course, we also focused on the side of the liabilities, that is the deposit portfolio. What we had attempted and what we are going to continue during the current year is a cost-light deposit portfolio. So in this connection, we took 2 major initiatives. One is to improve the CASA. So CASA improved to 31.49% from 28.91% about a year back. So this is a new high for Karnataka Bank, 31.49%. And overall cost of deposits also, because of the interest rate moderation and rationalization, the overall cost of deposit also reduced from 6.01% about a year back to 5.29% now. Of course, the SMA portfolio details also we have given in that analysis. So SMA2 was -- here, SMA2 means we have included the main accounts, the related accounts and also the accounts which are reported to CRILC platform, that is INR 5 crores and above, and also below INR 5 crores. So all very comprehensive SMA2 reporting is done. So in the March '20, it was at 2.99% of the total loan book. As far as March '21 is concerned, it is at 2.64% of the loan book. So in essence, what we have observed is, even though COVID-19 pandemic effect was there in the economy [ as factor ], we have been able to navigate very successfully without allowing our asset portfolio to deteriorate. Even in the stress in the system, also being very closely, we monitor. And let us see how this current year would emerge in view of the second wave of COVID-19. But I'm very confident that on account of our first year's very good experience, we should be able to handle it in a still better way and a very competitive way. And of course, the digital transactions was another area which has improved to 90.66% of the total transaction. So now this is very much at par with the new-generation of future banks, the digital transaction percentage. And our KBL VIKAAS transformation journey, our fully owned subsidiary KBL Services Limited, it has commenced the operation with effect from 30th of March 2021. So it would act as a huge facilitator of efficiency for the parent company, that is, Karnataka Bank. And our digital underwriting of retail loans, it has gained momentum during the last year, that is 2021. In fact, the home loan portfolio, which is fully -- that underwriting is fully digitalized, we have now 72% of our daily sanctions on an average is being sanctioned through the digital platform. During the Q3 of FY '21, it was at 63%. Similarly, car loans, all the eligible car loans. Now all the car loans that whatever that we are sanctioning, around 75% of that is being sanctioned under the digital platform. Last quarter, it was 73%. And last year, we have also started the MSME digital underwriting. That was during the second quarter of the last year. So now it has reached a level of around 42% of the MSME loans. So in the digital sanctions of the retail loan, I'm confident that, going forward, we will be able to reach a very ideal level of around 80% of all our retail loans to be sanctioned under the digital underwriting platform. Recently, of course, yesterday, when our Board of Directors' meeting was held, we have onboarded a new director, a new additional director. He is Mr. Balakrishna Alse, who was -- who is the former Executive Director with the Oriental Bank of Commerce. So with this, our Board now consists of 75% of members as the independent directors. And among them, 2 are women directors. And the Board has also recommended a dividend of 18%. And of course, subject to -- and they have recommended it to the Annual General ensuing Annual General Meeting to be passed. And as far as the way forward for the current year. So you all know the uncertainty will continue. So naturally, we have to be very cautious, very conservative also. So as and when the things start evolving, so we should also jump into the action to encash that opportunity. So our loan book and the overall growth of the business, we are expecting at around -- we have planned for around 12% to begin with. And our growth, of course, around 12% to 15% growth that we can think of for the current year. And the growth area, especially in the asset size, we will continue to focus on gold loans. This was one area wherein there is very good potential. So we have now almost 5% of our loan book under the -- I mean, gold loans. So we plan to take it to a level of 10% of our loan book. And simultaneously, we will continue to focus on the very potential area of the MSME with the improved underwriting qualities. Of course, the car loans. And very good potential for the loan against the properties. But all this growth, we will focus in the area of retail and mid-corporates only. And as I said, we will continue to focus on CASA, and that is in tune with our cost-light portfolio. And of course, with the operationalize-ation of our subsidiary, the operational efficiency would also further improve. So -- and we will be taking the digital initiative to their new high. So we call it the KBL Next. So end-to-end digital solution, we are planning for each and every aspects of banking, not only for the customer interaction, customer-related activity, but even for our internal office management, everything. So there will be a digital end-to-end solution. So that is in the big way to emerge as digital bank of future. So that is what we are planning for the new Karnataka Bank. And as you all know, our centenary year is scheduled for the year '23, '24. So we have some new benchmarks in terms of performance, in terms of achievement, or we are planning for that. So with that, let us -- we are planning for this current year, that is '21, '22, should be a year of excellence in spite of the external adverse conditions. So me and my team are totally determined to go, I mean, forward in that direction. So with these few words of opening remarks, I will now keep this -- I mean, forum open for the specific questions and answers, if any, from your side. Over to you.

[Operator Instructions] The first question is from the line of [ Danny from Panchatantra Advisors ].

I am [ Daily ]. I've been a shareholder of the bank for now close to 6 years, it's a fairly long time. And been hearing of consolidation and that the bank will focus on growth in the coming years. But unfortunately, the growth has been missing, sir. And this quarter, the numbers, we had a shortfall in net interest margin. The growth was not there. The NPA in terms of percentage terms has gone up. So as a shareholder, if I would have been holding a [ VLC by BSE ], I would have benefited. And being such a long-term shareholder, I feel that the bank has somehow not unlocked its potential, what the sectors could offer?

Yes. See, this year, especially the year ended March 25, 2 things had happened. You may have already noticed that one is basically the top line, second one is the bottom line. So we have not found it that conducive to focus more on the growth-related things. But as I said, we focused on the 2 areas where we found it, it is convenient and safe. So that is why a safe approach was followed as far as the top line is concerned. And we have not allowed potential areas of the retail and mid-corporate to suffer. There, we have already registered a growth of 6% and 7%, which is almost equal to the industry average. And that is the first aspect. Second one is in spite of that, we have able to fully protect the bottom line. You might have already seen, the net profit has already grown at a level of around 12%. And this 12% net profit, it has been very consistent for the last 4 quarters, everything. So that is the approach. And going forward, when once the economy is found favorable, definitely, we will be encashing that opportunity because the sales team, whatever that we have constituted, sales, marketing, separate team, that is the credit marketing department, everything. So they are in place, and we will be able to encash the opportunity at the very first sign of turnaround of the economy.

Next question is from the line of Bhavik Shah from B&K Securities.

So very detailed disclosures. Sir, what would be the interest reversal this quarter?

Interest reversal...

On slippages.

As you know that the -- because of the Supreme Court stay order, NPAs were not marked. And the whole bunch of NPAs got marked during the last quarter. And the unrealized interest during the last quarter is around INR 125 crores, which has been reversed from the income account. That was for the full year. Yes, but it happened in the last year.

[ Carry forward effect was there. ]

Yes, yes. Whole year's unrealized interest got reversed during the last quarter.

Okay. And sir, I understand we are targeting growth of 12%. Sir, as in how confident are we to clock 12%? And what would be the focus areas? Like in gold loan, the share would rise from 5% to 10%, but apart from that? And considering...

At the beginning of the year, yes, definitely, we were all confident and optimistic. But during the April, everything was going as per our expectations. May appeared to be, again, a troubled month. June also, we don't know what would be [ used for ] because how well the country would be able to control the Wave 2 that would really prove whether we can really focus big in the initial months. But what we have planned is, yes, on the first 3 to 4 months, growth may be at a muted level. But thereafter, definitely, we should be able to make a big turnaround and go big in the growth-related areas. I have already identified certain areas for the growth. As I said, the MSME; agriculture; and the gold loans; as well as the car loans; and of course, the loan against the properties, these are all the areas. In fact, last year also, our gold loan portfolio grew by 41.92%, MSME grew by 21.15%, agriculture portfolio grew by 5.87% and the loan against properties also grew by 8.62%. And these portfolios are performing well, and these are the initial areas that we have identified under our sector reactivation activity.

And sir, we understand the slippages from MSME book was quite elevated. So can you broadly give us your breakup of slippages into retail, agri, MSME and corporate?

1 minute. Okay, the MSME. [ This is how much we pay, this is -- ] MSME, as of now, out of the total book size of INR 14,653 crores, NPA is INR 979.17 crores, which constitutes around 6.68% of that portfolio. And the SMA2 is at around INR 593.40 crores. So 4.05% of the total MSME performing advances that is under SMA2. And agriculture, the present NPA is at 6.64%, and SMA2 is at 1.64%. So that those are the 2 major items. And if you look at the housing loan portfolio, the NPA, including -- not only our [ non-agri ] schematic loan. But even the non-priority sector, everything, the NPA is at 3.08% and the SMA2 at 2.38%.

Okay. Sir, I think I was asking for breakup of slippages segment-wise.

Slippages in this particular sector?

For the whole year, sir.

Slippage. Right now, we don't have. We will punish you. So we will make a note of it. NPA number under SMA 2 numbers, I have. The sector-wise slippage, we will let you know.

Sure. And sir, one more thing. What exposure do we have to Karnataka in terms of advances? And how does the collection efficiency panned out in Karnataka versus the rest of India for March, April and May months?

What was your second question?

Sir, how has the collection efficiency panned out in Karnataka versus for rest of India? Because I understand Karnataka was under lockdown.

Yes. Not only Karnataka, all -- most top district, states which are adversely hit by COVID-19 pandemic, there is localized lockdown, not the entire state. In few district-wide lockdown, given the closedown of the branches, bank branches, are also seen. The -- as far as the Karnataka state business contribution is concerned, we are -- this total business contribution from the State of Karnataka is 59.21%, and the CD ratio is 49.33%. So the -- this collection has come to a normal situation during the month of March and April. So May, may not be that well as of the April. There could be slight, I mean, deficiency in the collection during the month of May. So once we complete this May month, we will come to know what exactly is the position. But I'm confident that, by July onwards, the position may further improve substantially. But 2 months, yes, that stress will be there. So with regarding various relief measures and all, we certainly should be able to handle it effectively going forward because we have another 10 months during this year. So definitely, that would prove advantage for all of us.

Sir, any ballpark number on collection efficiency? And one last question, sir. Sir, how do you see your PCR panning out over the next year? Because we are at a very low PCR of 37%, specially this year.

PCR in the banking sector, it is -- I mean, is calculated including the technical write-off. So in our bank, including the technical write-off, it is at 70.05%. And excluding the technical write-off, it is thus at 36.56%. This will continue to engage our attention because this will also help us in further reducing the NNPA and other things because, all along, we have been focusing on this. So it continue to engage our attention, and let us see whether we can take it to a level of 40% to 50% going forward.

[Operator Instructions] The next question is from the line of [ Sandip Mahajan as an industry investor ].

The results are good, but it could be better. And sir, I don't understand one thing is in your Point #4 -- or 12. In which you could have carried on this INR 189 crores over 3 quarters and you have put in 1 quarter. Was there any need to do it in 1 quarter rather than over 3 quarters?

Yes, see, the last year carried forward of that INR 180 crores, plus our first...

I'm sorry, ladies and gentlemen. It seems that we have lost the line for the management. We request all of you to stay connected while we reconnect them. [Technical Difficulty] Ladies and gentlemen, thank you for patiently waiting. We have the management connected. Over to you, sir. You may please go ahead.

Yes. [ Mr. Sudhir ], am I audible?

Yes, sir.

Yes. Your point is regarding the Item #12, that is INR 189.37 crores. So actually, there was provision for us to amortize it in the current year's 3 quarters equally. What we thought is it is better to absorb these type of losses upfront. That is why during the first quarter itself, we had observed that entire -- that hit. That means that it was reversed to the reserves and surplus. And that shows the ability to absorb the future shock also. So keeping that in mind, to further strengthen the balance sheet, we took that hit upfront, even though there was a provision to amortize it further with respect to 3 quarters. It was a prudent proactiveness measure.

But this -- it depresses the net profit.

No. Because it would have been amortized over 3 quarters, and we took it in the first quarter. In fact, even that first quarter also, our profit was -- profit went up by around 10%, 11%.

Okay. Sir, next part is, whereas your corporate banking thing has come down by about INR 6,000 crores and your retail banking has gone up by about INR 1,000 crores. Why was -- and a lot of this money just lying in investments and in cash. What was the distinct reason for such a drastic drawdown in the corporate banking?

No. See, our corporate banking portfolio was not performing as per the expectation. Not performing in a sense that delinquency in the past was higher. And also, yield coming from that particular portfolio was also not up to the expected level. When we made an in-depth internal analysis, we found that the retail and mid-corporates, the performance is also better, risk is also well diversified and yield from this particular sector is also very, very attractive. Keeping that in mind, we took up this exercise of portfolio realignment. So as I have already said, even during the pandemic year, the retail advances grew by 6% and the mid-corporate by 7%. So we will continue that growth. It could be 6%, could be 12% or 15% during the current year. So now we are in a better position to tap this particular sector, and we will be making good of the loss that what we had suffered. That is -- of course, it was a conscious decision also in the corporate sector. We will definitely make good of that in the retail and mid-corporate sector, which would also provide an element of sustainability to our credit portfolio. That was very cautious and conscious decision taken by our bank.

Retail is also digital, so...

Yes. That advantage is also there. See, in our KBL VIKAAS journey, we are now almost entirely digitalized, that is, the loan underwriting is digitalized for the retail sector. That huge advantage is there. That will be definitely available for the current year onwards.

Sir, there has been a shortfall in the book value of your investments in HTM. Has that been also provided fully in this quarter?

HTM -- depreciation on HTM is not required to be provided. It's only on the [ efficacy and all ]. There was no depreciation on portfolio other than our SR. SR is getting depreciated. That's all. Portfolio is not depreciated.

Because you have made the statement that the market investments held on the HTM category...

No. That is for HTM. That is for HTM category.

Yes. That's why I'm talking of HTM.

Yes. HTM category, there is a depreciation of around INR 279 crores, but it will not be booked in the books of account as per the RBI guidelines.

The next question is from the line of [ Rishikesh from Global Capital ].

Sir, just one question. Could you please give your current cost guidance for next year?

Yes. See, credit cost, there are 2 components involved in nature. You all very well know it. One is the slippage related thing. Second one is our proactive provisioning for us to improve the PCR, and of course, eventually, our CRAR also. So on account of that, this year, even though it is at 2.37%, next year, it could be in the range of around 2%. And going forward, I am very confident that it will be below 2%.

The next question is from the line of [ Pranav Gupta from Red Enterprises ].

Actually, I just wanted to know, first of all, slippage guidance for next year. That is one. And second thing is, sir, why don't we track...

Sorry, ladies and gentlemen. It seems we have lost the line for the current participant. We will move to the next question, sir. That is from the line of Bhavik Shah from B&K Securities.

Sir, just on -- sir, we have a restructured book of around INR 1,700 crores. Sir, what -- at what rate can you expect slippages from this rate -- from this book going forward?

So from the restructured book you are asking?

Yes, sir.

Yes. Okay. I think we have always [ comment ] that restructured loans and related accounts, see, during the current year, of course, it was [ compromising ] 3.30% of our gross loan book comprising of INR 1,738 crores. And of that, the NPA is INR 248 crores. That is 14.3% of the restructured loan book. [ It's already 16 ] NPA. So the slippage would be in the same rate from the restructured loan book, maybe around 15% -- below 15% [ further ] going forward also. Because if you look into the SMA 2 that what we have already furnished in our analysis, SMA 2 for March '21 in this particular portfolio is at 6.61%. So that is a clear cut indication that it is well contained, may not go beyond that particular level going forward.

Okay. And sir, amidst the second COVID wave, what extent of potential restructuring do we expect?

Yes. For that restructuring 1.0, I had predicted about 2% to 4% of our total portfolio. So in this INR 1,738.41 crores of the restructured loan book, the OTR 1 was consisting of around INR 459 crores, and the MSME restructuring was INR 337.93 crores. And the other type of restructuring was INR 940.70 crores. And in this INR 940.70 crores, the previous restructuring was around INR 536 crores. So all put together, the percent to GBC was 3.30%. OTR 1 was 0.87% of the loan book. The MSME restructure was 0.64% of the loan book. And of course, others, 1.78%. Going forward, also under the restructuring 2.0, most probably it would be in the range of 2% to 4%. And we have already constituted a special task force under the leadership of CBO, Chief Business Officer, to examine each and every sector and each and [ every account ]. For restructuring, this [ have -- ] that is to be done with restructuring 2.0 initiative. That process would be completed most probably by September [ end ]. So account wise, details will be calculated. We will be interacting with the respective beneficiaries also, and we'll be [ expending ] the appropriate [ expenses ] as per the regulatory guidance.

Okay. Sir, I understand you're guiding for additional 2% to 4% of restructuring in the COVID second wave. And sir, there was just one clarification needed. So what falls under other restructuring?

Other restructuring, other than the MSME -- and see, [ OTR 2 ] is up to INR 25 crores. So in the other restructuring, there was about INR 25 crores, and this time -- of course, last time, the corporate advances were also there. So in fact, we have identified 2 accounts for restructuring of the big accounts. Of course, they were [ constituting ] about INR 400 crores.

Sir, what segment, what sector [indiscernible]?

One sector was trading. Another one is construction actually.

And sir, any ROE guidance?

ROE, we have -- we sustained our level. But see, I would touch upon NIM, ROA and ROE also. NIM, of course, the current year, it has slightly improved to 2.91%. That is as of March '21. Last year, it was at 2.84%. So our endeavor should be to take it at [ above ] 3% by this year-end. Then ROA, also some positive traction was observed for the entire year, 0.53% to 0.57%. So I think we may take about minimum couple of years to reach a level of 1%. And ROE also, from 7.35% to 7.65% for the entire year. Again, to reach a level of 10% plus, it may take another couple of years. Of course, these are engaging our attention. And once we are able to minimize the slippages, then definitely these things would look better. And that's the type of turnaround. The initial signals are already there even though it was a COVID-19-affected year. So it all depends on how -- to what extent we will be able to sustain that quality of advances, which I'm very confident that we should be during the current year. And with that, these numbers should look attractive.

Okay. And sir, just one more clarification. You mentioned that there are 2 accounts -- large corporate accounts under restructuring totaling to INR 400 crores. Sir, are these [ NPAs as of ] now or just standard...

Yes. No, they are not [ NPAs ]. They are fully standard.

They are fully standard.

And the [ CI also signed them and it is ] standard [ there ].

Okay. So it is -- Okay. Sir, [ they're under ] standard restructure of INR 1,700 crores?

Yes. Yes. [indiscernible] If they are NPAs, it would have come -- it would have been [ discussed in a separate discussion. They are not NPAs ].

Okay. Okay. And sir, what is the ECL disbursement amount? Sir, I understand there's a slide which mentioned amount advances [ under retailers ]. So is it disbursement or...

GECL, INR 2,198.94 crores. This is a disbursement. [ Actually may be ] another INR 200 crores extra, around -- it could be in the range of INR 2,300 crores or so. So almost everything is disbursement.

Next question is from the line of [indiscernible]

Sir, just 2 questions. One is that is there any [ kind of ] guidance that you can use for next year? That is one. Second is, sir, up to what level of employees have we actually distributed our ESOP? Is it branch manager? And if not, then why not do it in this [indiscernible]. That is second. And third is that how open bank -- branch -- bank management and the largest shareholder is to, say, getting to the bank 1 or 2 private equity players or guys who can actually bring more managerial assistance and also have [ board sit in ] the bank? Because the bank is so much undervalued for the quality of franchise that you have. I think [ 3 or 4 ] big changes can actually unleash a very good future return.

Yes. I think you raised 3 questions. One is regarding slippage. Second one is ESOP. Second -- third one is further enhancing the [ equity-related center ]. Slippage, I think, I have already answered. I said that it would be in the range of around 2% for the current year. And going forward, it should come down because my slippage was 3.75% for the last [ 2 years ]. And this year, it is only 2.44%, and that, too, in the back of COVID-19 Wave 1. So for the current year also, we are hopeful that the slippage would be in that same range, less than that. And going forward, it would be below 2%. ESOP is -- we have already launched 2 such schemes. It is very much [ there ] in the bank. So it is not up to the manager or [indiscernible] officer. It is purely based on their performance. We have this MD's Club and other thing. So wherever there is a very exceptional and very, very -- this very good performance, they are rewarded with the ESOP. So that would continue. See, wherever that is required, we have absolutely made up our mind to continue this type of rewarding to encourage performance as well as involvement of all of our employees, right, from, of course, MD to the -- even branch-level attendants also because they all have different KRAs. In accordance with that, depending on their performance evaluation management, it is being considered. As far as the third one is concerned, yes, the issue is 2 things there. One is the capital adequacy ratio. Second one is the right price for our share. So capital adequacy ratio is now, as I said, this is comfortable at 14.85%. But however, even though the book value has gone up for this -- INR 213 now, but it is not properly reflected in the market also. So in that direction, definitely, [ what are all required to be taken ], we will definitely continue to take that. That is why the first and foremost is to further strengthen the professionalism of the board. You may be aware that we had [ invested ] good number of independent directors in the recent past. And as an institutional investors onboarding are -- whatever that is required going forward, we will be definitely looking -- we will be definitely examining all those issues in the larger interest of all the stakeholders.

The next question is from the line of Bunty Chawla from IDBI Capital.

First of all, on the employee expenses [ that we see ], we have reported INR 240 crores of employee expenses during this quarter, which has been lower as compared to Y-o-Y as well on a sequential basis. So if you can share what should be the normal run rate we should see in FY '22 and as well as if you can share your guidance on cost-to-income ratio.

Here, [indiscernible] consists of 2 components. One is [ a fixed ] component that is the salary. Second one is, I should call, this superannuation benefit as a variable component because it is varying in terms of the market yield and other things. And current year, we are not going big for any recruitment and other things because of the digitalization and all. My employee cost may remain at the same level subject to variation in the superannuation benefit here. So having said that, the second part of your question, that is cost-to-income ratio, so there are 2 -- I mean, favorable things have happened. Last year same quarter, that is, the fourth quarter, our cost-to-income ratio was 58.17%. And this quarter, that is, the fourth quarter of FY '21, it has improved to 53.90%. But if you look at the entire year, it was at 49.67%. And for the current full year, it was -- it further improved to 45.65%. So it should be going forward our endeavor to have it at around 45%. So last year also, we had aimed to have it 45%. Having achieved that, [ we see ] our responsibility to maintain this and further improve it.

Secondly, any equity raise in capital planned during this year [ we have ]?

My dear friend, that is a continuous process. We will be keeping all the options examining. And at the right time, definitely, we will look into that. But as of now, our capital adequacy ratio is comfortable at 14.85%. So that is also one of the factors to be [indiscernible] while onboarding -- while undertaking [ these capital ] augmentation [ efforts ].

Okay, sir. Sir, lastly, just a confirmation. You said slippage ratio guidance at 2% as well as credit cost guidance for FY '22, 2%. Am I right in that?

Slippage ratio, slightly in the same range. [ As I said ], 2.44% is the [ present range. It will be in ] the same range for the current year, and going forward, it will be below 2%.

Okay. And credit cost, 2%?

[indiscernible] credit cost also. So since we are now in the phase of making proactive provision, there could be -- it could also be in the same range for the next couple of years. Now it is 2.37%. Last year also, almost at the same level, [ 2.28% ]. So credit cost at this level, what I'm [ realizing is it's ] not mainly because of the slippage, but also because of our proactive steps in accelerating our provision.

So what is our internal target PCR for FY '22, if you can share with us?

PCR?

Yes, provision coverage ratio, if you can...

[ It will be ] at the same level. See, 70.05% is present PCR. It was at 64.70%. We will try hard, and definitely, we will be always interested in maintaining it at about 70%.

[Operator Instructions] The next question is from the line of [indiscernible], institutional investor.

I am a relatively new investor, and I do not know much about banking, frankly. But I've -- there is one thing that I've noticed. Over the past 4 years...

[ Just one minute ]. Yesterday, I have [ sent a ] communication to all our shareholders through our email. Have you received that?

Yes.

Okay. Fine. Yes, please go ahead.

Yes. So I have noticed over the past 4 years, the bank has been [ giving the shocks ] in Q4 in terms of net profit. Is that something that is -- I mean, I think it was about INR 11 crores in '18, [ net ] profit was about INR 62 crores in '19 and then INR 27 crores in '20 and INR 31 crores this year, right, roughly, thereabouts. So is that -- I mean, are those all exceptions? Or is there [ an effort to ] that? That is one part. I understand this year your provisions were higher. But then, I mean, every -- it's been a trend for the last 4 years now.

Let me [indiscernible] question. See, it is a natural process in the sense that every quarter is a unique quarter, not just the first quarter or the second or third or the fourth quarter. Depending on the overall operational profit that we have, we have to make provisions as per the regulatory requirement and all. But you have already made -- we have already noted that this year, the fourth quarter was something unique. Now all NPA provision, NPA recognition, everything we have to do during this last quarter. So the accumulated [ this year ] effect was also there. But nevertheless, our effort would always be to give a consistent performance, consistent results. So that is what I meant in my opening remarks also. On an average, about 10% to 15% of this bottom line growth, consistently we are providing. So from that angle, that is not an exception. Your second question, please?

[ That's the first one ]. The second one is as you look to balance your portfolio more towards perhaps retail, there are 2 parts. One is what would your strategy be given that there will be more competition for retailers? And b, will that mean an increase in your marketing and sales costs and by how much?

Yes. See, both these aspects are taken care of during our digital journey. Yes, as you have rightly pointed out, retail is the buzzword for almost all the banks. That clearly indicate that there is a good potential also. Even during this pandemic-affected economic scenario, home loans, everything, there is a very good demand. And since we have now embarked upon this digital underwriting, so we will be making it more competitive as well as the quality aspect is also taken care of. So with this, we are expecting a good business in that particular portfolio.

The next question is from the line of [ Saket Kapoor from Kapoor & Company ].

Sir, if I could sum up from the interaction we had currently, sir, as the book value stands currently at INR 214 and you're guiding for an ROA of 1% in the coming 2 years. And the NIM, sir, I missed the part. What is your guidance for the net interest margin going forward?

It should reach 3% during this year because it is already at 2.91% for the full year.

Okay. And for the 2-year horizon, sir, what should we be looking into?

Definitely, 3% plus. We will be able to take it to a level of 3% by this year. Thereafter, then let us see.

Sir, as you told that market is not valuing the equity correctly, so what is actually the management time line? And what are the key milestones that we, investors and the analysts, should keep tracking that would result in the enhanced or the right value of equity? If you could, sir, just briefly summarize for us, sir, [indiscernible]?

See, as an investor -- I'm not an investor. So I may not be able to give any suggestions or advice to you. But the only thing with my limited knowledge what I can share with you is keep tracking the numbers that is being published by us. That is why we have also started proactive communication to all the shareholders.

Yes, sir. I have received the mail. Yes.

Yes. Yes. At the moment, the audited results were scrutinized by the Audit Committee and approved by the Board of Directors. We are hearing all those information. Second one is -- of course, this is a direct transmission of the information to you. Second one is we also have this practice of uploading a detailed analysis of the performance, whatever that the investors would require to take an informed decision. We are analyzing and we are uploading it in our website. Please go through that. And yes, these are the 2 things that definitely you should follow. [indiscernible] being made to the stock exchange as well.

So that's all fine, sir.

Yes. Apart from that, of course, definitely, we are here to take care of the requirements of all the stakeholders. So our efforts in a transparent and effective manner would continue going forward.

Sir, I was looking for the key milestone from the management point of view, say, 2, 3 years down the line that would result in enhanced shareholder value. I was looking for that [ comment from you ].

See, we had focused on not 2, we had focused on 5 areas. One is we were very much interested in improving the CRAR. So that we have achieved now. Now it is at 14.85%. In fact, this is the highest ever CRAR for Karnataka Bank. So that reflects the strong fundamentals. Second one is the PCR. PCR also now at 70.05%. This was one of the very well aspiring area for us. So we have achieved that, and we will definitely keep it at the above 70%. And the third one is our digital transactions percentage. We had thought of taking it to a level of almost equal to the new generation private sector bank. So now it is at 90%. That is a huge advantage. And the fourth one is, as I said, the cost-light portfolio. So that means 31.49%. That is the fourth important thing. And the fifth one is definitely going forward, our digital underwriting. So these are the fundamental changes that we had focused in the past and we have been able to achieve. And of course, the next [ 3 ] important areas could be NIM, ROA, ROE and also containing the slippage ratio and the credit cost. So our effort will be there because once we are able to effectively [ handle this NPA ], which we have been reasonably successful during the current year, so going forward, I think those problems will not be there. So our NIM, ROA, ROE would definitely look attractive going forward. Keep tracking these numbers, and I will also keep sharing this information with informed investors like you.

Sir, one small point. When we look at the revenue -- the segment revenue and the segment results, we find this for this quarter, in particular, the treasury operation income have gone down considerably taking the proportionate on a quarter-on-quarter basis. So any -- and also on the corporate banking front. Sir, any specific that we have -- that we made? Because on the revenue part, the decline is not that severe. Whereas the bottom line, there is a strong shrinkage. So how should we read into these 2 numbers, [ treasury ] operations and corporate banking?

No. The segment reporting, whenever we are doing the segment reporting, [ in view of the -- as M.S. ] has already said that some credit, we have -- there was not growth, then the money was put into the investment. When we do the investment, the cost of investment is getting reduced there. So that is the reason. [ One of the item was ] that. And another item is that what are the depreciation that has been affecting the investment portfolio to some extent [indiscernible] getting affected. So it is actually [ not surprising for the right reason. Not -- ] segment reporting is based upon some kind of costs that have been allocated to each of the segments. And even for the treasury [ section ], also the cost will get allocated. [ Administrative cost ] will get allocated.

So that happened in the fourth quarter only, sir? That is what my point is. Sir, just to make understanding, sir, on a revenue of INR 341 crores, the treasury income is INR 78 crores. Whereas for December quarter on a revenue of INR 389 crores, the treasury income is INR 130 crores. So I just wanted to understand the reasons for the decline.

[indiscernible] In fact, our earlier quarters, if you compare, we were earning because of the market conditions. The profit on sale of investment during the first 3 quarters was very good. From February onwards, this quarter, we are not able to earn much profit during this segment. So that has also affected the last quarter segment reporting. [indiscernible] first 3 quarters, we have earned a profit of around INR 600 crores [ on trading ] profit, and the last quarter only INR 25 crores.

It was basically market driven. You can't expect that in every quarter there will be trading profit, even though our endeavor is to get the profit. But again, it was basically an external influence or factor.

Right. But the bulk of your profits are from these treasury operations only. It was -- this year also, [ INR 778 ] crores. So if they are on a declining trend, then that -- what are -- what is the indication?

Yes. Last 2 years, we could make -- we could have a decent profit in that portfolio. Let us see. Our endeavor should be to get a profit. It is too early because we have not even completed 2 months. So it's all, again, depending on the market opportunities. So we are confident and optimistic that we should be able to get some decent profit from that portfolio also going forward.

And lastly, on the dividend payout, sir, what was there as per the RBI formula the maximum that could have been given? Or 18% was the maximum dividend payout?

It was [indiscernible] actually, as per the Reserve Bank of India, dividend payout ratio [indiscernible] for dividend payout metrics. And based upon that dividend payout metric, our bank is eligible to have a payout ratio of 25%.

Payout ratio.

Yes. Payout ratio of 25% is eligible. This time, what -- is that out of that, only 12.5% [ payout ratio ]...

[ Or 50% ] payout ratio.

That is like 12.5% of the profit can only be [ distributed ]. So that [indiscernible] crores [indiscernible]. And as a result, it translated into 18% dividend. [indiscernible] as per the [ extent of ] regulatory guidelines, we have considered that for the dividend.

Right. And lastly, sir, on the GNPA part. Sir, what is your guidance on -- what are we looking going forward? Looking at [ now ] the books and the provision coverage ratio, what should be [ aimed ] in terms of the GNPA for the next 2 years, sir?

I have every reason to believe that the GNPA is in the mode of moderation because it was at INR 2,799 crores last year, now at INR 2,588 crores. That is why in our presentation, we have also [ made ] what was the GNPA in the area of big ticket advances and mid-corporate retail and all. So almost all the big ticket advances of even INR 50 crores and above, the [ stress ] is fully absorbed. So with that in mind, the GNPA is likely to -- in absolute terms, it is likely to come down. So that is why I'm optimistic that the slippage ratio would also moderate at around 2% and going forward, below 2%. [indiscernible] we have to be very, very cautious because every day, with this onset of COVID-19 Wave 2, every day is a different day. So only thing is depending on our cost experience of having handled it in a very, very effective manner, I'm confident that we should be able to sail through smoothly during this Wave 2 [ also ].

Ladies and gentlemen, that would be our last question for the day.

If there are any questions, we will take the last one, Aalok.

Sir, that was the last question. I will be handing the call over to Aalok Shah for any closing remarks. Aalok?

Yes. Thank you, Mahabaleshwara, and the entire team for taking out your time and putting forward the [ thought through ] on this results and the way we look forward. Thank you [indiscernible].

Thank you. I wish you all a safe and healthy life. Thank you, [ everyone ].

Thank you very much.