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

Ladies and gentlemen, good day, and welcome to The Karnataka Bank Q1 FY '23 Earnings Conference Call hosted by Investec Capital Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mahabaleshwara M. S., MD and CEO. Thank you, and over to you, sir.

Yes. Thank you. Good afternoon, and a hearty welcome to each one of you for this Q1 FY '23 earnings con call of Karnataka Bank. I am Mahabaleshwara M. S., MD and CEO of the bank; and I have with me my COO, Mr. Balachandra Y. V.; my CBO, Mr. Gokuldas Pai; and CFO, Mr. Muralidhar Krishna Rao, they have also joined online. To begin with, let me highlight on 2 important things which need to be factored in while understanding the Q1 results in its right perspective. The first one is MTM losses on investments on account of increased yield. We have made a full provision of INR 156.58 crores as investment depreciation provision, and the same is, this time, debited to interest income as per the extended guidelines. Earlier such losses used to be debited through provision and contingencies. As a result, we are seeing a marginal year-on-year growth of 6.93% only. Otherwise, the interest income, Y-o-Y growth would have been around 17.21%. Secondly, we have a slippage of one corporate credit amounting to INR 308.01 crores as on 30th June, which eventually got recovered during the first week of July. Nevertheless, we went by the IRAC norms and treated this account NPA and also made full provision. Hence, our GNPA has gone up sequentially to 4.03% from 3.90% as on March '22. In spite of this, on year-on-year basis, it has improved from 4.84% to 4.03%. 4.84% as of June '21. Had it not been there, the GNPAs would have been further improved to 3.51% as on June '22. Further, it also had an impact on slippage ratio, which is presently at 1.03%. RLC could have been 0.47% as against March '22 slippage ratio of 0.73% and 0.83% as on June '21. Similarly, credit cost, which is shown at 0.69% as on June '22 would have been 0.16% as against 0.21% as on March '22 and 0.45% as on June '21. So in spite of fully absorbing the said 2 hits, bank has been able to improve its net profit by 7.63% to INR 114.18 crores. And NII has also gone up by 19.62% Y-o-Y. NIM also has further improved to 3.33% as against 3.25% during March '22 and 2.98% during June '21. NNPA has further declined to 2.16% from 2.42% as on March '22 and 3.02% as on June '21. PCR also further improved to 76.77% from 73.47% as on March '22 and 72.16% as on June '21. CRAR is at 15.58% as on June '22, by without accounting the quarterly net profit, as against 14.8% as on June '21, and 15.66% as on March '22. Advances have grown by 13.03% Y-o-Y whereas CASA has grown by 12.51% year-on-year. And the CASA share now stands at 32.80% as of March -- 32.80% as against the March position of 30.97%. On -- about -- yes, 32.97% as of March '22. Going forward, I'm confident of keeping the growth momentum in both 2 major areas, that is the credit and CASA, which has been identified as our focus area for the current year. Of course, besides further improving the asset quality by focusing on credit monitoring to minimize the stress in the portfolio as well as by minimizing the slippages, so as to further reduce our delinquent assets. Consistency and sustainability shall continue to be the hallmark of our performance going forward. Further, Board of Directors in their meeting dated 23rd July '22, have fixed the 26th August '22 at the date for conducting the Annual General Meeting. And I would request all the shareholders to please make note of the same. So with these few opening remarks, now the forum is open for deliberations. Thank you.

[Operator Instructions] First question is from the line of Yash from [ Dante Equities ].

So I just have a couple of questions. And first, I would like to get a sense of the loan growth ahead. So if you could -- if you can give me an idea of the ground reality or guidance, anything would be great.

That is the advance of growth.

Yes, loan growth.

So for this quarter, advances grew by 13.03% Y-o-Y. And the major areas of growth, the contribution was in the area of agriculture, which grew by 10.28%. Agro Processing was also there in agriculture, which grew by 16.52%. MSME grew by 11.27% and lease rental discounting 10.95%. Of course, we have been focusing more on gold loans also which has grown by 3.75% and to certain extent, car loans, 8.44%. But the NBFCs have contributed significantly for growth. Going forward, we are preparing well to achieve a growth rate of more than 15%. I think that would be a reality from September onwards. So credit growth, CASA growth, credit quality management also would continue to be our priority areas.

Okay, sir. Perfect. Sir, also on the treasury income return on the investment depreciation, are you expecting that to subside from next quarter onwards? What is the expectation on that?

Yes. Slight upward or downward movement could be there because it is, as you know, market determined. But we believe that, yes, there could be some upward movement during the next quarter. But a majority of fixed, whatever is expected, I believe that it is almost [indiscernible]. Let us wait and watch for that particular moment.

Also on what you said regarding the INR 308 crores corporate restructuring or the amount that's come after June, quarter ended. Could you tell me, just so that everybody understands it in a very clear and same manner. What impact did that have -- that INR 308 crores have on the provision of INR 298 crores on this quarter in net terms? The total provision this quarter was INR 298 crores and the INR 308 crores provision, what impact did that have on which provision? I'm basically, asking you on the net profit. On the net quarterly profit, what is the exact impact of the INR 308 crores of particular corporate loans on this quarter's end? [Technical Difficulty]

Ladies and gentlemen, the management line is disconnected. Please be on hold. I'll quickly get them reconnected. Ladies and gentlemen, the management line is reconnected.

Hello. Yes. Shall I continue?

Yes, I hope you got the question.

Yes, yes, I got the question. [indiscernible] one of the corporate advances which was -- which has seen a temporary delinquency. And however, since as of 30th of June, it was NPA. Subsequently, the amount was recovered during the first week of July. So in tune with the IRAC norms, we treated that account as NPA, and also, we have made the full provision. Full means 100% provision. And there was interest reversal, unrealized interest of around INR 40 crores. So that was also given effect. So with the debt repaid, interest on loans and advances is INR 1,236.73 crores, which is already shared with you. So without said effect, the interest earning would have been INR 1,286.73 crores. Similarly, the yield on advances, which is slippage, it is now shown as 8.81%. Otherwise, it would have been 9.09%. Of course, it had an impact on the gross NPA, which I have already mentioned. So now our gross NPA is shown as INR 2,401.39 crores constituting 4.03%. Otherwise, it would have been INR 2,093.38 crores, which would have been 3.51%. Of course, it also had an impact on the PCR as we have covered it fully. So now the PCR stands at 76.77%. Otherwise, PCR would have been still above 75%. That is 75.37%. It had an impact on both on the credit cost as well as the slippage ratio. Only for academic purpose I'm repeating of these things. Credit cost, now it is shown at 0.69%. Otherwise, credit cost would have been, yes, credit costs would have been 0.16%. Similarly, now the slippage ratio stood at 1.03%. Otherwise, it could have been 0.47%. So in all the areas, it has an impact, but nevertheless, during the July first week itself since it is recovered, these things would get further factored in when we announce our September quarter results.

Yes, sir. So my main question was so that investors can understand it, out of the INR 298 crores provision how much -- and -- out of the INR 308 crores loan, how much was provided for in this quarter alone?

This quarter, I think INR 340 crores -- INR 290 crores is provided during this quarter itself.

Yes. INR 298 crores is the total provision that you've made, right, in this quarter?

Total provision is INR 308 crores.

No, INR 308 crores, is that loan that you booked.

Yes, yes. See, INR 200 -- INR 308 crores is the slippage, we have around INR 58 crores earlier provision, around INR 250 crores is the current quarter provision.

Of the 3 -- so basically, INR 250 crores -- you achieved INR 250 crore reverse from this quarter to the next quarter because it's being provided for. Am I right?

Yes. Correct.

Yes. So basically, just to put it in a very simpler understanding terms, so without this account, your provision would be INR 50 crores? Am I getting it right? The digit?

Our provision would have been come down [indiscernible].

Total provision? Yes. So since your total provision was INR 298 crores, your provision would only come up to INR 50 crore odd, right, this quarter?

What has happened in that account, that was a restructured account where you are holding standard advances provision, okay? Standards advances provision now that account was put into NPA. And no more that requirement of holding the standard advance provision. Whereas all the provision is made towards the NPA. So net-net, I'm writing that standard advances provision of around INR 58 crores. Whereas creating a new provision towards NPA of INR 308 crores.

So net-net, that will have an impact of INR 250 crores when you write the NPA part on the next quarter, right?

Yes.

Okay. Sir, since last 2 quarters I have been consistently asking you about the update on the fundraising plans. Do you think that you took out another provision of INR 1,000 crores? Could you talk more about that? On what's happening in that -- That's [indiscernible] asking questions doesn't make sense, you can tell me whatever you can tell me.

Yes. Whatever -- what I can share with you right now is, it is a continuous process. Still, we are evaluating various opportunities. And now you may have noticed that our CRAR has further improved to 15.45%. So -- and by March '22, we have already raised a debt of INR 300 crores. As a result, the CRAR is above 15%. So this PAT and other related issues, which continue to engage our attention and at the right time and at right price. Because by duly taking care of the interest of investments and all, it all would be taken care going forward. So keeping that in mind in our 26th August AGM, we'll have also put an enabling provision to take care of that going forward.

So what does the enabling provision be? Should we vote for it? What does it do?

See [indiscernible] resolution is valid for 1 year. So the earlier resolution was passed in the previous AGM. So similar type of resolution, we are putting forth before the shareholders in the ensuing AGM scheduled for 26th August.

So before the deadline for the AGM was by September, right, for the fundraising for the QIP. So basically, what they do is here -- you're taking more time for the QIP?

No, it is not like that. As I said, as of now, it is of course a continuous process. We are just waiting for the appropriate time. So to get that into -- to ensure that one more provision -- I mean, this AGM resolution is a must because we are not shelving that particular idea.

Okay. I just have one more question. As an investor what I would like to know -- this is my last question, sorry for taking so much of your time. This is my last question. And my last question is, [indiscernible] of Karnataka Bank right now is somewhere around INR 230, okay. What I would like to know as an investor is that when you go ahead with the QIP and when you are raising funds, what kind of price to book value would you look at as a minimum threshold for raising funds? Or then making the question more clearer would you...

I got your point. See, that is why our committee of directors, that is committee of the Board that is also evaluating all these points. Very recently, we have met and deliberated all these things. So that's why I said at appropriate time, an appropriate decision would follow.

So you won't be able to share a minimum threshold of price to book value for QIP?

All these things are factored in. When we arrive at a final conclusion, definitely, all your concerns, so that would be factored in.

Next question is from the line of Saket Kapoor from Kapoor & Co.

In continuation to our earlier investor, if you could give us some ballpark idea of what are the enabling factors, whether it is on the operational front, that will lead to this -- triggering you to go for this equity raising? And at that time, what would be your basic requirement for which you would be raising this point? What percentage are you eyeing from it? And since our provision coverage ratio is at a high of 75%, so where does this requirement? What is your growth capital, if you could elaborate further on the same? And then I have some line item questions.

Yes. See, as you have rightly pointed out, we have been focusing on further improving the fundamentals. So you may have seen how the PCR is consistently improving. However, NIM consistently is showing a positive traction and how we have been able to bring down the NPA as well as the NNPAs and how our CASA is bearing. And of course, in the long run, we have also improved the CRAR. So now we are not that desperate to increase the capital because the growth capital as of now looks adequate. But you may also understand to those that it is a continuous process. So as and when the market is very convenient for that, we should be able to encash that opportunity. So that is what I can share with you that all options are kept to open. It is being evaluated. So depending on the need for the bank as well as by taking care of the stakeholders' interest, we will be taking an appropriate call on this fundraising.

So just to deliberate on it, it will be in the form of equity issuance only or we can opt for other norms like bonds and other equipment -- other options?

It depends on the market. See, last time, we were exploring the equity, but all of a sudden, there was good scope for raising the bond and not -- the market was not congenial because of Ukraine-Russia war and all such things, for rising through QIP. So we are -- I mean, exploring all the options. Whichever is convenient and found convenient for the bank, and that option would be explored.

Sir, the bond issuance, what was the coupon rate you did last [indiscernible], and what was the amount?

10.70.

10.70. And what was the amount we had raised?

INR 300 crores.

And that was totally for the institution only or do the retail and other -- the SME category also participated?

[indiscernible] itself.

Sir, in this increasing interest rate environment, we can also look for raising capital through your existing shareholder base in the form of this bond issuance to your investors also. Only the -- it was only the institutions, those have benefited from this 10.7 interest rate advantage. And smaller investors or SMI category, since the market is not well developed I can understand that it is difficult to raise these amount of funds. But what can be done on the same on raising and that is also -- you can also come up with perpetual nature wherein you can come with a call option, wherein you can redeem the same also at a short notice so that things can be structured in that manner. That was a very basic understanding from my side. So your comment on the same, sir?

Yes, what is happening in this case is that the bond is closed -- bond issued. Which is a subordinated bond issued and as for the regulation, it is only meant to be issued in favor of CIBs.

Okay.

So the face value is also INR 1 crores. Therefore, retail selling of this instrument even on a public issue, it is not possible.

Okay. If I come -- and sir, currently, sir, we have seen the softening of the [indiscernible] over a period of last 20, 25 days from a high of 7.67%, I think it is currently at 7.36%. So -- and also they're taking into [indiscernible] impact today. And taking into account the upward revision in interest rate that is expected going forward also. How is our portfolio currently aligned if [ defect ] is higher than what is earlier highs was? How is the portfolio marked so that the MTM impact could be more higher if [ added ]? So how are we aligning our portfolio currently or we have to say the way it is going forward?

It all differs for the yield movement. But I personally feel that the major impact is already factored in. Going forward, if at all, there is any impact, it would be a marginal one.

Correct. And on the ROA improvement part and the employee cost part, if you could throw some more light?

Yes, yes, another plus point about 52% of our advances is already linked to the EBLR, external benchmark lending rate. As and when the lead movement is there, naturally, this also gets [Technical Difficulty]

Ladies and gentlemen, the management line has disconnected. Please be on hold as we quickly get them reconnected. Ladies and gentlemen, thank you for holding. The management is now reconnected. Thank you, and over to you, sir.

Yes. What I was mentioning is that even though there is some marginal impact on the MTM losses and other provisions requirements, we are also going to be benefited because around 52% of our advances is already linked to the EBLR. So hardly about 26% is under MCLR. So this benefit in terms of increased yield on advance is instantaneous. So that is what we have been observing. So I think we should be able to make good of that by earning more and more interest income going forward on account of this particular factor alone.

And on the employee cost front, sir, there has been some lower charges on account of employee costs. If we take year-on-year numbers also and definitely March numbers also.

Superannuation benefits have come down, again, because of this yield movement. So going forward also, during September, it is likely to show the same trend, of course, with lesser magnitude.

And sir, you also mentioned in the earlier reply that post September, we are looking for good quality numbers to come for the bank. So what are you expecting for this quarter that would disturb the case? Or there would be -- there will be a trend lower?

No, I consider this part of number also very good. Because of that only one account, which we decided to treat it as NPA as of June, purely in tune with the IRAC norms. That is why I have given you the comparative position of both the things. I'm very confident, that is why I said that the consistency and the sustainability, whatever that we have been -- I mean focusing since last couple of years, definitely, it would take -- we would be able to take it to a new high.

And on the ROA improvement, sir, return on assets?

Yes. As of now, it is at -- for this particular quarter, it is 0.49%. And last year, for the full year also, it was at 0.49%. So going forward, definitely, it will show a positive traction.

What should we look forward for this year?

This year, guidance...

Trajectory at least, sir?

Pardon?

What is the trajectory? Likely trajectory for this year?

It will be positive. But exact number, I may not be able to share with you right now.

And sir, last point is on the tax expense and reversal, sir. If you could explain, there is a reversal of INR 64 crores on the tax expense account for this quarter.

This is on account of availing the benefits, on account of making provisions for NPAs, et cetera, as per the income tax provision.

So this will also get reversed for the September quarter when you are reversing the same? The NPA gets reversed into a standard account?

No, exactly it may not be in that way. It all depends upon, again, the benefits available at that point of time for provisions for NPAs and also the other income tax benefits to be taken via banking.

So only to understand, I mean when we have taken this quarter provision because of that INR 308 crore account, there is a reversal of tax expense. So if you could quantify what amount of reversal is attributable to that -- for that account, then we can understand that, that reversal is surely going to happen for the next quarter and there will be higher tax outage -- [ stack ] incidents for the coming quarter. Certainly not a reversal.

No, exactly, I got your point. But what happens -- I can [ complaint ] back, yes, on account of that one major account making full provision, there is a substantial benefit from the point of present income tax also. But again, on September, when you are making the provision for taxation and also financial result, to what extent we'll be creating or improving our PCR, that also counts where we take the benefit of the taxation. Certainly, there will be some kind of an impact. I cannot say it will be again a write-back. But it all depends upon the tax planning we will be making as of 30th of September.

And also the income profile also? Tax planning will come only on the basis of what income you are accruing for the quarter?

Correct. You're right.

Sir, currently, we have engaged Dixon as our new IR agency, sir?

Yes, yes. Recently, we have entered into that kind of an arrangement for awarding the Investor Relations services. So going forward, they will be acting as IR agency for Karnataka Bank.

Okay. Sir, what actually happens [indiscernible]. Sorry to use the word, but it is the fact that we investors are currently having with not only with Karnataka Bank, but also not to name other -- your competitors on this platform. But everybody has taken or will take advantage of when the market is conducive to raise equity and dilute your existing shareholders value. So [indiscernible], it is detrimental to decrease our value or detrimental to the value creation process there. If you come up with an equity issuance, wherever market is never giving you even 1x book -- for that 1x, not even 5.5x. And whatever will be the association in your profit going forward, whatever explanation you have given, even then also do -- it is hard to believe that you would be able to raise capital and even 0.6 or 0.7x book. So going forward, this equity issuance more or less will be detrimental to your existing investors. Clear my doubts around this front, where am I incorrect?

No, you are correct, Saket. Your sentiments is also taken into account. So that is why I said we have been evaluating. I'm not -- we have not just hurried up with raising the capital. I think we have been interacting with you on this particular issue for last 1 to 2 years. So we, too, are not interested in issuing the shares at a very, very low price because it would be not only detrimental to you, but also not favorable for the bank. That is why I said, before we come to a final conclusion, we will take all these factors into account. So that is the feeling of the Board also. Many times, we've had in-depth discussion on this point. So the only comfort is that CRAR is at a reasonably comfortable level. So keeping -- and other fundamentals are also improving. Let us hope that market would also behave or perform as per our expectation going forward so that we should be in a better position to take care of the interest of all the stakeholders.

Thank you. Mr. Saket, we may request that you return to the question queue for follow-up questions as there are several participants waiting for their turn. Next question is from the line of Ghanshyam Agarwal, an individual investor, please go ahead.

Sir, like I have been the investor of this company since long. But however, sir, I have one specific question on the account. So sir, this reversal of INR 300 crores that have happened. So is there any likelihood again, this account may become an NPA, again, it will become -- there will be a provision for it? Or is it just like the probability is on the low or neutral side?

It is recovered. Only a small portion of penal interest, that is only pending. Otherwise, the account's entire major balance is already recovered. It is not just upgraded, it is recovered.

Okay. That's fully recovered. Okay, sir. And my second question would be, sir, like it is -- since May 2019, what I am watching, so the share prices have gone down dramatically. And we know that the markets are way smarter than us, so -- and as an investor, I don't find it, the real rate of return. I mean, I'm not even getting my interest amount. The rate of return is on a negative side. So this is very much concerning as a retail investor, like I have quite a substantial amount of shares. And secondly, like why can't we find alternatives and place at least some amount, say, this is the situation, say, 4% to 5% of our equity to some private placement so that at least there will be -- because mutual funds are also not holding our shares, accepting our LC for 4.68%. Mutual funds have all sold off our shares from, say, May 2019 till date.

Yes. So all of the efforts from our side to improve the fundamentals and to improve the business, definitely, that is well within our reach that we are making and you are showing the results improvement quarter-on-quarter. Market sentiment is also, I'm confident that going forward, it would definitely take note of all these positive things. And definitely, I think going forward, we should be able to come up to the expectations of the retail shareholders. Your observations, your suggestions is noted, and we will take care of it going forward.

The next question is from the line of Sushil Choksey from Indus Equity Advisors.

Can the Karnataka team management sort of stable [indiscernible]? Sir, I just wondered the basic guidance on some of the parameters in case I have not heard you before. Our CD ratio, credit growth, cost to income and on your gross NPA, net NPA itself to start with?

Yes. CD ratio could be in the range -- we are aiming for about 73% to 75% going forward. And the second one is the credit growth, as I said, it will be 15% plus because I have good number of credit proposals which are in the pipeline. And both the NPA, that is the gross NPA and the net NPA would continue to show a declining trend because the stress is not piling up. So our effective recovery management and also the good recovery in the existing NPA, either the recovery or upgradation, these are all happening as per our preplanned things. So all -- in all the areas, coupled with the growth, I'm having a positive outlook.

What will be your credit cost guidance for the year?

Credit cost, as I said, for this particular quarter, it stood at 0.69%. So not just on account of the slippage, because we are still focusing on improving the PCR and other things. On account of this, it may slightly go up. Last year, our credit cost was 1.04% for the full year. So this year, it could be somewhere around 0.5% to 0.6%, less than that.

Okay. And ideally, what PCR would you like to maintain for the year and for the future?

PCR, see, my earlier plan was to bring it to above 70%. We have accomplished that as of March '22. So now somewhere around 72% to 75%.

Sir, our presentation is very elaborate and very informative. You've already highlighted about the nonperforming accounts, which was recovered in couple of days after the quarter ended, but technically, you have to make a provision. Is it possible to you to divulge it as a corporate account that we can make out was it a government, state government or a private account?

You people are smarter than me. So I think you have all the aspects. It's not [indiscernible] to divulge all those things. I said it's a corporate account. So it was expected to be closed by 30th June. It didn't happen. Subsequently, they closed it.

What's your guidance on employee cost on quarter-on-quarter and -- or annualized and basically because the numbers quite varying between quarter-on-quarter.

Yes, yes. See, the main reason is superannuation benefit. The salary and all, no significant jump. And going forward, as I said, we have also activated our subsidiary, KBL Services Ltd. So that is also helping us in cost rationalization on employees. So of course, it is a long-drawn process. So the efficiency would gradually be seen when we are very actively engaging with our subsidiary. It is just 1 year old now.

Sir, as per your guidance, whatever you've provided, and the NIM should be sustainable and you would not need equity for the current year based on the projection which you're giving for the current year. And as and when you need equity, will it be only for growth capital or you may need equity for some other thought processes?

NIM. Yes, definitely, it is sustainable. And capital if at all we... [Technical Difficulty]

Ladies and gentlemen, the management line has been disconnected. Please be on hold. I'll get them reconnected. Ladies and gentlemen, the management line is reconnected. Please go ahead, sir.

Yes. NIM is sustainable at 3.33%, I think we should be able to further improve it. And your second part of the question, capital requirement, if at all it is there, it is mainly for the asset growth capital.

Then listening to all your answers, and listening to all the other participants who have been existing shareholders. Would it not be at an appropriate time when the prices are right, to do a small rights issue and this INR 200 crores, INR 300 crores in favor of existing shareholders who will not only help growth capital, but also get rewarded in some fashion, a certain yield for the earnings potential, which the bank is definitely showcasing for quarters and years to come by?

Your suggestion is well taken. What I said is we will evaluate it. But some of the investors, what they have addressed is not to explore the rights issue because, again, the dilution as well as bringing down the value of our own share. But anyhow, we have a work on mind...

I don't [indiscernible] the valuation of existing shareholders would get diluted in a rights issue if you do it at appropriate time. I understand the current book value and the market price may be a function, which is more of the current market situation on the banking stocks and buyers, sellers dominating. But I think looking at the step and the direction which I see from your numbers, I'm quite sure that the bank would be rewarded in the marketplace in the quarters to come by and appropriate that with the right direction by meeting investors would be healthy.

Good. I [indiscernible] your optimism.

The next question is from the line of Mr. Vivek, an individual investor. Please go ahead, sir.

Mr. Vivek. Not audible.

The line of Mr. Vivek is disconnected, so we'll go for the next question, and that is from Mr. Ghanshyam Agarwal, an individual investor. Please go ahead, sir.

Sir, there was just one more question. So after this adjustment of INR 300-odd crores, so effectively, this quarter EPS would be around INR 8 to INR 9, which is again correct? Please correct me if I'm wrong.

I have not done the calculation. So if you have done the calculation please share it. [indiscernible] extent.

So yes, basically, we got INR 250 crores of reversal and INR 100 crores of profit, so it would be around INR 300-odd crores, INR 31 crores shares is the shares issued. So it would be around minimum INR 8 to INR 9 [indiscernible] as against to INR 3.61.

Mathematically you may be correct. But while finalizing the [indiscernible] shares, there are so many other issues would also get factored in. Arithmetically, I think...

More on this -- because we are just wondering like in spite of this effective performance by the bank, it is at all not showing in the -- like we are -- the INR 4 dividend is also there, everything is there, but the return on the equity is not there as an investor.

We are addressing that issue. Going forward, I think you should be able to effectively address this issue in a more significant and effective manner. Credit have already been arrested. On the credit portfolio, whatever now we are building, the [indiscernible] -- so naturally, it should result in improved return on asset.

Okay. So are we also looking at, say -- Karnataka Bank is a bank which is more focused towards the southern region of India. So are we looking at expanding our base of growing more in east or west and north side?

Wherever there is business opportunity, we are expanding. But we feel that since this is a digital era, we are focusing more on digital touch points rather than brick-and-mortar touch points. So my growth area is around 12 states in the country. So where there is a very good business potential. So we have a plan to expand our business in primarily -- basically in these 12 states.

The next question is from the line of Mahesh M.B. from Kotak Securities.

So just 2 questions. One, on the ground, if you could just kind of give us a color on how has been the -- let's say, if you're undertaking recoveries, how has been the progress on that front with respect to the time taken and the value of the collateral that is sitting there? That's number one. Second, when you're speaking to your loans team, what is their sense of how is the demand environment and whether the borrowers have reached pre-COVID levels in terms of revenues.

Yes, I will answer the second question first. The demand is picking up. As I said, in fact, we have seen this demand curve going up during the fourth quarter of the previous year itself. And it has further sustained during the first quarter, even now also the credit growth, especially in the ticket size of INR 1 crore to INR 100 crores, that is very robust. Second one is you made a reference of loan recovery. Is it the NPA recovery? What [indiscernible]

Yes, NPA recovery.

Yes. NPA recovery is also on the expected line because we have good number of proposals, especially in the NPA proposals where people have come forward for the OTS. That is the reason why our NPA have -- see, if you exclude this INR 308 crores, the [indiscernible] is very minimal. So I'm very confident of sustaining that type of recovery going forward also.

In the sense that when you look at your retail and mid-corporate book, which contributes to a little over 80% of the book today. And when you are putting those assets on auction, you're -- the preferred option is still the auction route or onetime settlement seems to be the only way out to resolve the underlying account. Just kind of...

Now what we have done is we have started the [indiscernible] option on at least once in a 2 month kind of -- like that. So that has given very positive impact. So there, the auction success rate is also high. And those who are with immediate option or settlement, they are also coming out with the OTS option. So that is the reason there has been very positive movement in the NPA portfolio. So majority of the accounts are getting settled, either through the auction process or through the OTS process. And we have been able to sustain this momentum. I have -- I'm very closely watching the movement in the NPA portfolio. Quarter-on-quarter, there is a sustainable momentum.

Just to confirm this. In your assessment, with the gross NPAs at around 4%, where you see this ending the year based on the...

I have already given that the comparative number. So I think we should be able to have the NPA at around 3%.

And the net NPA?

Net NPA is already at 2.16%. So I think maybe at the same level or slightly big because it again depends from a provision, we are going to make forward -- going forward. So most probably around 3% GNPA and around 2% NNPA looks quite possible, and that is the visibility that we have right now.

Next question is from the line of [ Pimal Panchal ] from [ Pimal Panchal & Associates ].

Hello? Yes. Good afternoon. My name is [ Bimel Panchal ]. Sir, we are a private sector bank. Yet we do aggressively participate in social schemes launched by the government, like Jan Dhan and all these things. Yet as a private bank, we do not get significant tie off of our government business in the form of deposits and transactions. So a few years ago, around, say, 5-, 6-year at Mumbai AGM -- Mumbai Analyst Meet, you've told that our bank is aggressively approaching to get the business from the government both from the central as well as the state government. So my question is what is the progress in this regard? Because we are losing very significantly with the Canara Bank and all these things. That's my one question. My another question is, sir, one of the quicker way to increase price to book value or underperformance of -- the share price, the buyback. So as your management have explored this way because the cushion is not proper because on the one we are looking for the growth trajectory, and we are looking for the fundraising, but buyback is also one of the best rate to raise the share price and all those things.

You have 2 questions.

Yes, two questions.

The government deposits. So it was 1.5 years back, the Government of India has provided level of greenfield. So [indiscernible] the private sector banks to have the government [indiscernible]. We approached the Reserve Bank of India and Karnataka Bank is now empanelled as an agency bank for the government. So with that, we are now approaching all the governments, both the government departments, state governments as well as the central government and the departments, and some headway we have already made. We have started an exclusive government agency business up-sell also added by a competent executive. So a lot of efforts are being made. And we are also getting empanelled for the tax collections and all such things. And our IT enablement, that is also being taken in a forward mode. So all these things would definitely help us to get more and more faster and also some other related benefits. As far as the buyback is concerned, so it is right now not being explored. I think time may not be right for us to explore that. Going forward, let us see what would be our -- I mean our action point for that particular suggestion given by you.

Okay, sir. And sir, our new IR agency Dixon is very good. Kindly continue with them.

The next question is from the line of Saket Kapoor from Kapoor Co.

Sir, in case of our loan book, the type of -- what is the type of stress test that is done so that -- and also how are we taking use of [ AI ] in contemplating the slippages in advance. I think so earlier is -- during calls, you did spoke about AI as -- artificial intelligence as a source by which you would be knowing when an account -- retail account can fall NPA, or what factors would lead to then take corrective measures? So where are we in terms of that acknowledgment?

We have already started our DCoE, Digital Center of Excellence, which is now [indiscernible] our digital underwriting of the loan. On the similar lines in our KBL next transformation initiative, we have started this initiative of ACoE, Analytical Center of Excellence, maybe another 2 to 3 months, I should be able to ensure that this is up and running. So there a lot of analytical -- analysis will be made. And one among them is some projections or estimation well in advance what would be the behavior of the advances portfolio apart from ample opportunity for [ crop ] selling and other places. So nevertheless, even without that right now, we are having our internal assessment based on the early warning signal and other things. So as a result, when we have the ACoE, I think we'll be still in a better position to have an effective collection and in minimizing the stress. So that is why I'm optimistic that the portfolio is behaving as per our expectation with lesser stress. Eventually something us in having minimum slippages going forward. So things are going in right direction.

Yes, the short point is, it is regarding the quality of book only, that gives our bank its size to book ratio. If I'm -- I a layman and only an investor, but the basic understanding is that your provisioning and your quality of book as been presented and as being perceived by the market are different. So there is a gap between what the perception of the market and cross market size and what has been articulated in the form of our annual account. So what steps -- what are the ways and means by which this gap of perception will be bridged, because perception is not going to change by your words or by anybody -- any management. I'm just shifting to another bank that also spoke about in the same line and then gone ahead with an equity issuance at below what the market price was.

Excuse me?

Just allow me to complete, sir. And I have no further point to make. We are investors in the company and we have this platform.

The management line is disconnected.

Oh, sorry, sorry, -- very sorry. I should have heard you.

Not a problem, sir. The management line is disconnected. [indiscernible]. Ladies and gentlemen, the management line has been reconnected. Please go ahead, sir.

Sorry, I got [indiscernible].

Very sorry, sir, for that. Yes, sir. You can hear me now very clearly, sir?

Yes, yes.

So I was just deliberating on the point of perception. When you are -- when our books are quoting our price to book and the book value and the same stock trades at much [indiscernible] money, only a percentage of what its value is. There is a lack of confidence, and there is a different perception in the market about what's your accounts are speaking and what the market is perceiving. And as earlier said and mentioned that markets are always smarter, sir, they otherwise there -- and there is always a buyer and seller for your stock. So it is very confusing for retail investors for [indiscernible] or whoever who is putting money into banking stock in particular, to get this perception deficit out of the system. This is -- what steps the management can take going forward to bridge this perception gap? I'm just referring to another South Indian Bank, in fact, it was South Indian Bank itself, that also gave us very holistic commentary and then came up with a QIP issue at INR 8 per share thereby diluting the existing shareholders' value as they also gave the same commentary to investor that at an opportune time, taking into account all the factors, you will go ahead with the issue, but they went ahead and they diluted 5% issued at INR 8. So that is the apprehension in investors' minds, this perception to bridge our small size, midsize bank concentrated in concentrated geography. So that this firstly, my understanding is that, firstly, this perception factor needs to be clear. You have good IR people like Dixon and all. They are doing commendable job. So first try to bridge this gap of perception deficit phase that is happening in the market. Otherwise, why would market with these numbers will not even allow the -- will not command a book value of even 0.6 to 0.7x? Forget 1x that is not being able to -- that is able to get for Federal Bank and all. So we cannot match them today. This is a holistic point we are doing conference calls. We are doing all the good things which the management can do, inclusive of the presentation, con call, meeting the investors. But where is the -- what is the mood point? Why is it not getting reflected? So try to engage other agencies, try to engage the people who understand the market perception better than -- because of your work is to get the operational performance of the bank improved. And it is impossible for you to take note of the market perception. So kindly engaged with the right set of people, kindly get the right set of advice and create what you want to do it in a holistic manner. So this is when -- what the point is, other than that, everything is in black and white, you have been explaining us for the last 1 hour, sir. That's all from my side.

Thank you. I think, as far as the thought process is concerned, both of us are at the same page. And with that intention only an IR agency, who's an expert in given the right information -- for dissemination of right information to the market is engaged. So that is why let us be optimistic. I think things will settle down going forward. Thanks for your very critical input.

The next question and the last question will be from the line of Suraj Das from B&K Securities.

I have just 2 questions. First is on OpEx on your staff cost. You have explained that the decline in staff cost Y-o-Y, Q-o-Q is because of -- only partly because of the yield movement, which is lower provision [indiscernible] impact. So I just want to ask, I mean, if you can quantify that impact or assuming the yield stays where it is right now, what would be the run rate for the staff cost for next couple of quarters?

As you [indiscernible] establishment, then component is consistent for 2 elements. One is for the [indiscernible] serving employee, other is the superannuation benefit. Salary and [indiscernible] we are part of the industry [indiscernible] limit. As and when [indiscernible] increase are there it is of a [indiscernible]. I think an important factor is the superannuation benefit. We can base it on the actual evaluation wherein all this discount rates, et cetera, also taken into account. In an estimation basis for the year for all our superannuation benefit, it includes pension, gratuity, leave encashment and also unused sick leave. These are the 4 elements which are going into the actual evaluation. So for the quarter of June '22, there is a write-back of, net impact INR 39 crores with effect of superannuation benefit additional contribution. So it is once again dependent on all the [indiscernible] is going into the actual evaluation calculation.

Understood, understood. What would be the expected [indiscernible] on our guidance on the staff cost for the next couple of quarters. And please explain it to [indiscernible] the same. Am I audible now?

Your voice is breaking.

[Technical Difficulty]

No, no. Can you repeat your question?

Yes, yes. So what I'm saying is can you guide us on [Technical Difficulty] the next couple of [indiscernible] to remain in the same level or let's say INR 180 crores, INR 190 crores? Or I mean, what is your guidance here?

Could be in the same range. What I'm telling is there will not be a significant jump as far as the salary is concerned. Even though we are a part of IBA. But going forward, this IBA settlement related things have just commenced once in 3 years, this happens -- once in 5 years, sorry, once in 5 years, it happens. So we have already started factoring in that also. But we have been very cautious in ensuring that our turnover per employees, turnover per branch and turnover -- I mean, operating profit per employee is continuously on the increasing mode. So the productivity aspects also we are taking care of. I'm not expecting a very big jump in this establishment expenses, excluding superannuation benefit, of course, which is again dependent on the external factors. Internal factors wherever we are able to have an effective control that we will continue the exercise as been done in the past.

Understood, sir. And the last question from my side would be, sir, you have guided that 15% Y-o-Y growth expectation. What would be the segment or let's say, what are the areas where -- which are expected to be key growth drivers?

As far as the ticket size is concerned, it is the retail and the mid corporates. So that means -- I mean, retail is up to INR 7.5 crores and mid-corporate is up to INR 100 crores. And the preferred areas would continue to be agriculture, MSMEs and of course, gold loans on the personal loans and some scope for the lease rental discount as well as there is still some very good scope for the NBFC. So these are the emerging areas and which have shown positive signs of growth, healthy growth. So we will be focusing on growth areas, besides our schematic lending, including the home loans.

We have reached the end of question-and-answer session. I would now like to hand the conference over to Mahabaleshwara M. S. for closing comments.

Thank you. Thanks for the participation by all investors and analysts. This time, I don't know there was some disturbance in the connectivity. I'm sorry for that. But nevertheless, things are on the expected lines as far as we are concerned. And I'm sure that going forward, we will be consistent and sustainable in all our aspects and giving more focus for further improving the fundamentals and also in improving the value creation for all the stakeholders. Once again, thanks for your active participation. Thank you very much.

Thank you. On behalf of Karnataka Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.