The Karnataka Bank Limited (KTKBANK) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Karnataka Bank Q2FY2026-27 Financial Results Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touchstone phone. Please note that this conference is being recorded. Today, we have with us on the call the MD and CEO, Mr. Ragvendra S. Bhatt and ED, Ms. BGSS from Karnataka Bank. I now hand the conference over to Mr. Ragvendra S. Bhatt, MD and CEO. Thank you and over to you, sir.

Yeah, very pleasant evening to everyone, and thank you for participating in the Q2 FY27 earnings call of Karnataka Bank, a banking institution that has successfully navigated the financial landscape for more than 102 years. The journey began in 1924 with a simple purpose to serve our customers with trust, prudence, and a personal touch. As we now continue our journey in the second century of financial service, we have grown increasingly resilient and continue to serve as a dependable banking ally for millions worldwide. Rooted in its legacy from the coastal city of Mangaluru in Karnataka, our Q2 FY27 performance showcases a steady consecutive quarterly expansion powered by our stakeholders, customers, and staff under the capable stewardship of our chairman and the board. We have successfully delivered on our promises to the investors and secured substantial enhancements across every primary financial metric, demonstrating the impact of structured implementation and operational excellence. Our strong growth trajectory reflects substantial operational progress, which will become clear as we walk through the financial metrics. I trust you have had the opportunity to walk through our financial results and investor presentation which were circulated after yesterday's board meeting. According to the broader financial system, the Monetary Policy Committee has unanimously voted to increase the policy repo rate by 25 basis points to 5.50% during its October 26 meeting. The MPC also decided to change the stance to calibrated, tightening global growth, remained resilient in 2026 so far, supported by AI-related investment and fiscal stimulus measures despite disruptions due to the ongoing West Asia conflict. Renewed energy price pressures, stock inflation pressures, and prompted a more hawkish stance from the regulator. Fiscal sustainability concerns, persistent inflation, and geographical uncertainty raised bond yields while equity markets remained volatile amid lingering concern on valuations of technology stocks. The domestic economy showed resilience in H1 26-27 despite continued global uncertainty amidst the conflict. The supply-side pressures were well managed by proactive policy measures by the government that ensured adequate supply of key inputs. Real GDP recorded a growth of 7.8% in Q1 26-27, reflecting strong momentum in underlying economic of both private consumption and investment. Going forward, India's macroeconomic outlook remains resilient, supported by domestic demand and strengthening investment despite persistent global uncertainties. The outlook remains vulnerable to geopolitical developments, volatility in global energy markets, and weather-related uncertainties. Weak monsoons, protracted geopolitical tensions, rising international commodity prices, additional frictions in global trade, and tightening of global financial conditions could adversely impact the growth outlook. Let me now present the business highlights. Bank has achieved its highest-ever aggregate business, which stood at Rs. 2,07,132 crore as of 30 September 26, up by 5% Q-on-Q from Rs. 1,97,007 crore as on 30 June 26, and up by 17% YOY from Rs. 1,76,461 crore as on 30 September 25. Gross advances to debt, 92,015 crore as on 30 September 26, reflecting a GOY growth of 6% from 86,610 crore as on 30 June 26 and a YOY growth of 25% from 73,644 crore as on 30 September 25. Our overall strategy is to continue our focus on growing retail, AGRI, and MSME work. Our RAM portfolio has grown from Rs. 53,172 crore as on June 26 to Rs. 56,969 crore as on September 26, which is a 7% QOQ 7,958 crore as on September 26. On September 25, which is a 19% 50Y growth, MSME 98 crore to our retail segment during Q2, continues to reduce low-yield corporate exposure in accordance with our earlier systemically replacing the IBPC book margin expansion. The IBPC portfolio, which was at Rs. 1,375 crore as on 30 June 26, has been brought down to Rs. 1,309 crore as on 30 September 26. Accordingly, around Rs. 66 crore have been replaced during Q2 FY27. Going forward, our strategy focuses on accelerating retail expansion and stabilizing the corporate portfolio by prioritizing high-quality, better-yielding assets. Aggregate deposits as on 30 September 26 stood at Rs. 1,15,117 crore, reflecting a QOY growth of 4% over 30 June 26 at Rs. 1,10,396 crore and a YOY growth of 12% over 30 September 25 at Rs. 1,2,817 crore. CASA ratio as on September 26 was 31.80% and 32.42% as on June 26 and as against 31.01% as on September 25. The bank has continued to focus on shifting high-cost bulk deposits to granular retail deposits of less than 3 crore. The retail thumb deposits, that is less than 3 crore, has grown by 4% from Rs. 69,410 crore as on June 26 to Rs. 72,197 crore as on September 26. On a YOY basis, retail term deposits have grown by 10% from Rs. 65,531 crore as on September 25. The bank is actively trying to consciously lower its dependence on expensive bulk deposits while making sure that most of the renewals are carried out at established card rates, which allows for better management of the total cost of deposits. CD ratio as on September 26 stood at almost 80 percent, that is 79.93 percent, as compared to 78.45 percent as on June 26 and 71.63 percent in September 25. Net interest income. NII for Q2 FY27 stood at Rs. 982.44 crore as compared to Rs. 938.29 crore in Q1 FY27, registering a Q on Q growth of 5%. On a YOY basis, NII for Q2 FY26 stood at Rs. 728.12 crore, recording an 35% YOY growth. Net interest margin stood at 3.17% for Q2FY27 versus 3.20% in Q1FY27 and 2.72% in Q2FY26. Loan yields. Yield on advance for Q2FY27 stood at 8.76% as compared to 8.68% in Q1FY27. According to an 8-bps improvement, loan yields will be further strengthened by accelerating retail growth while stabilizing the corporate portfolio through high-quality and better-yielding assets. Cost of funds stood at 5.15% for Q2FY27 as compared to 5.16% for Q1FY27, registering a one business point improvement. The sequential quarter-on-quarter improvement in cost of funds is expected to be supported by our continued efforts to reduce the dependence on bulk deposits and replacing the same with retail deposits at card rates and focus on CASA build-up. Pat, Q2 FY27, Pat stood at Rs. 435.89 crore as against Rs. 418.95 crore in Q1 FY27 with QOQ increase of 4%. There is an increase in PAD from Rs. 319.12 crore in Q2 FY26 with a YOY increase of 37%. Stress taxes. Gross NPA percentage as on 30th September 26 stood at 2.27% as against 2.58% in June 26, thereby showing an improvement of 31 basis points. The gross NPA percentage as on September 25 was 3.33%, which is a 106 basis points YOY improvement. Net NPA percentage as on 30th September 26 stood at 0.74% as against 0.87% in June 26, demonstrating a 13 basis points QOQ improvement. Net NPA percent, as on September 25, was 1.35 percent, recording a 61 business points YOY improvement. The sustained quarterly improvement in both gross and net NPA ratios reflects the bank's present efforts to curb slippages and enhanced monitoring efficiency. Supported by the functioning of regional collection centers and quality credit underwriting strictly following the guardrails. Credit cost is 0.002% for the quarter Q2 FY27 as against 0.03% in Q1 FY27. Slippage was 0.11% for Q2FY27 as against 0.25 was Rs. 939 crore, registering a 31% YOY reduction. PCR. In line with the bank's commitment to increase PCR, the bank has continued making accelerated provisioning, and the PCR stood at 68.05% as of September 26, as against 67.03% as of June 26. PCR, including technical return of account, stands at 85.78% as of September 26, as against 84.70% as of June 26. Cost to income for the quarter ended 30 September 26, cost to income ratio stood at 52.68% as against 55.14% for the quarter ended 30 June 26 and 58.93% for the quarter ended 30 September 25. The bank's focus on low-cost deposits along with an emphasis on RAM and high-yield portfolios to enhance loan years would further expected to improve our net interest income and support sustained control over the cost-to-income ratio in the coming quarters. Return on equity stood at 12.51% as against 12.48% in Q1 FY27 as against 10.14% in Q2 FY26. Return on Assets. Q2 FY27. Return on Assets stood at 1.26% vs. 1.29% in Q1 FY27 as against 1.03% in Q2 FY26. Liquidity Coverage Ratio, that is LCR, as on 30th September 26, LCR stood at 164% versus 169% as on 30th June 26 and as against the statutory mandate of 100%. Capital Adequacy Ratio 20.36% as on 30 September 26, of which Tier 1 19.20% and Tier 2 1.17% in comparison to 21.10% as on 30 June 26. For the calculation of CRAR for September 26, eligible profits as required under Extend RBI Guidelines have been considered. Products. We remain on track with our products' development and launch initiatives with a continued focus on bridging the remaining gaps in our product offerings. Agri Schemes. We are actively exploring the introduction of input finance and other agricultural credit products across various crops covered under their respective boards, coffee board, tobacco board, tea board, rubber board, etc. 2. Supported by Structured Repairment Arrangements. This expects agricultural support and marginal farm advances and ensures food repayment and facility, loan against property for MSME, drop-line overdraft for MSME, and some of the products which are in various stages of implement it is in the pipeline. They are incorporation of drop-line OD features to key MSME products, end-to-end digitalization of key MSME products, KBL Startup Finance, a dedicated credit scheme for startups and emerging enterprises, retail products, products launch. Express DG Gold Loan has been launched on 21 September 26, marks a strategic milestone in the bank's digital transformation, delivering a seamless, secure, and faster gold loan experiences. This initiative is poised to expand customer reach, accelerate business opportunities, strengthening the bank's competitive position in the 90% funding on project cost for purchase of ready-built under-construction residential units, products which are in the pipeline. Limit Enhancement in Housing Loan Schemes Surrogate-based Lending for Housing and Mortgage Loans No. 3. Digital Document Execution for Vehicle Loans No. 4. End-to-end Portal for Channel Partners Liability Products Capital Gain Account Scheme A Specialized Account Scheme to park capital gain funds to claim tax exemption No. 2. Project in Pipeline Launch of Marketplace FD Delivery Channels The platform enables transaction history, mandates, etc. Transactions, internet banking with new implementation of solutions. Bank is also exploring layman implementation, CDP, common data platform, mule hunter, sales buddy, that is AI assistant, few major solutions that are in progress. They are loan against mutual funds, shares under digital channel, secured credit cards, implementation of DPDP solution, new treasury application, new NPA management solution.

The structural cornerstone

of Karnataka Bank remains its resilient framework and capacity to capitalize on emerging growth opportunities. Over the recent periods, we have secured meaningful milestones by scaling our retail and MSME business lines, optimizing deposit and borrowing expenses, and strengthening the overall health of our credit portfolio, thereby establishing a powerful baseline for persistent advancement. Our approach remains heavily anchored in practical execution with modern digital adoption with human tech and tailored solutions already securing significant market traction. As these programs expand in scope, they are positioned to systematically enhance our interest rates, bottom-line returns, and core operational metrics in the coming quarters. In the face of international disruptions stemming from global friction and logistical blockages, the bank distinguishes itself by maintaining conservative risk boundaries, operational flexibility, and armed with strong capital reserves, comfortable cash positions, a defined blueprint, and escalating commercial absolute certainty in our ability to maintain healthy expansion. Further, the bank is taking all required steps to efficiently mitigate risk in cyber and AI-related domains. We remain deeply committed to shaping a forward-looking, corporate governance-anchored enterprise. As we honor our historical roots and steer through this rapidly transforming landscape, I want to express my sincere appreciation for your ongoing reliance and collaboration with the face of Karnataka Bank. I would now like to hand over the call to the moderator for any questions and feedback from our callers that we would be glad to take.

Thank you. Please go ahead.

Yeah, am I audible?

Yeah. Good evening.

Hi. Good evening, sir. Congrats on a very good quarter. Just a couple of questions from mine. First is on the NIM and ROA guidance for the rest of the year. So, if I look at the benchmark, the six-month T-bill, the yields have gone up in the last one and a half month. So, is it sad to assume that the NIMS will be closer to the upper end of your target 3 to 3.4 range that you have given in the PPT? It will be closer to that range, the upper end of the range.

That is one. You said two questions are there.

Yeah. So, I mean, I also wanted the ROA guidance for the rest of the year. Like, I mean, as to what are you saying in terms of ROA? Second question was on the NIMS, again NIMS, which have declined on a sequential basis. So, if I look at the ease and cost of funds, they have improved, I mean, on a sequential basis. So, seemingly the fall is only due to the others' line under your interest income. So, what is there in that others' line item which is under your interest income? Just wanted to understand that.

Yeah. NIM, as I mentioned earlier, that means last year and all, I was categorical in telling that the focus is on improving the NIM 3% plus and ROA 1% plus. You are aware when I met you also I have told very clearly that NIM has dropped to 2.72, ROA has dropped down to 0.72 from where we have taken it 3% plus in March and continuously maintaining that. Some BIPs here and there, it happens because of average figures. Average figures, change in CASA, average cost of deposits, borrowing, some BIPs, this is just three basis points difference. So also in ROA, but we are committed always to improve it further. But quarter on quarter, when we see, here and there, some plus, some minus will be there. In the Q1, there was an item in the interest on income tax paid. That was in the Q1, one of the items. Otherwise, barring that, NIM is always on the increasing only. So also ROA. Regarding, another question you asked regarding was that decline?

No, so NIM decline, I mean that you answered the interest, the income tax thing in the previous quarter. My question is on the guidance for S2, NIM and ROA guidance for S2.

Yeah, ROA and NIM, as I mentioned, 3% plus and 1% plus continuous improvement every time. That much only I can tell you. Continuously, we are maintaining, as I told you earlier also, it is 3 to 3.4 percent. So, also, ROA 1.1 percent plus I said, it will be between 1.1 percent to 1.3, 1.35 percent.

Okay. All right. That could be from my end for now. I will get back in the queue. Thanks.

Thank you, Jiraj.

The next question comes from the line of Yashwant Tipeswamy, an individual investor. Please go ahead.

Hi, sir. Good evening. Good evening. Good evening. Yeah, I'm sorry. I'm driving. I mean, you might hear some noise behind. So, I just want to put a couple of questions. So, first of all, with respect to the provision, so this quarter, I think, there was somewhere around 20 crores has been provided, and having said this, looking at the West Asia conflict and inflation, so, I was thinking that, I mean, was there any reason why we did not do an aggressive provisioning? Do you see the asset quality, you know, in a good shape? So, is that the reason why we are not, you know, doing aggressive provisioning? So, that is first question. And the second question is with respect to the number of branches. Do you foresee that, you know, we are touching, you know, 1,000 branches by this financial year?

Yeah, with regard to the aggressive provisioning you are telling, we are always aggressive in provisioning only. Last year around this time, March 25, if I remember correctly, it was 58 percent, and 1 percent every quarter we have committed, taking that into account, in the last six quarters, 6 percent increase means it should have been 64, 64 plus, whereas we are at 68 or so. Therefore, continuously we are providing to the best possible extent, taking into account overall requirements and audit requirements and our internal strength to provide additional provisioning. Regarding number of branches, yes, we have gone little bit slow in H1 because we are very cautious with regard to the premises rent. And we do not want to compromise the location. We want to select the best location, having commercial advantage, economically suiting to the bank's requirement. Therefore, we have finalized around 24 centers and fixed the premises also. And 17 premises are under various stages of construction of safe room, interiors and all are happening. Before December end, we will be adding minimum 15 branches. And as per the corporate, we have 31 branches during this financial year. I am confident that all these 31 branches will be opened before 31st March. This also signals or whatever there in our mind, having an ambition of crossing 1,000 branches, this will happen during this financial year. Thanks for all the support from investors and all well wishes. Thank you, Mr. Eshwan.

In the growth path, sir, and we continue to want to see the, you know, similar kind of consistency in the result and, I mean, you driving the bank in the difficult times of higher inflations and West Asia-related, you know, economic issues. Thank you so much, sir.

Thank you very much. Thank you very much.

Participants, in the interest of time and fairness to others, please restrict yourselves to one question. For any more questions, you may rejoin the queue. The next question comes from the line of Sarvesh Gupta with Maximal Capital. Please go ahead.

Good evening, sir. Congratulations on a good set of numbers. Sir, on the fee income, we saw some moderation in quarter two despite disbursements going up. And on a year-on-year basis, I think it is still flat. So, how do we see our fee income going forward?

Yeah, fee income actually does not come down. We are able to maintain that. But taking into account Q1, there was one-off item. Q1 and Q4, there will be one-off item. I will tell you in advance itself. In the Q1, locker income, and Q4, that card business we are doing, that income will be there always. Barring that, we have by and large maintained. By maintaining, other income is not adequate. We are finding out various solutions, bringing out various solutions, which will add value by having fee-based income. All other income which are traditionally there, it is that. In addition to that, this mutual fund business platform and advance shares and all, those will add value to the business. We are very much focused on that, on our fee-based income. Going forward, definitely, we are very optimistic that that also will be improved.

Sir, like going, I mean, on a YOY basis also, it is flat at 206, 207 crores, while we have seen significant increase in disbursements. So, have we taken a call where we are not charging the fees on the disbursement that we are doing or any other reason why it should be flat on a YOI basis also?

That is what I said. A lot of initiatives are in the various stages. As I mentioned too, I will add further, we have also some other solutions like red card business and all. See, unless and until it is implemented, initially there will be various stages of implementation. Some will happen immediately as per our target. Some gets postponed to the next quarter. We are focused on that. We are working on it. Flat income cannot be accepted at all. We have to grow. Traditional income and all, it has lost its importance. Whatever is there, we are in the competitive market. Definitely, we are exploring all these new areas, and definitely, I am confident.

Sir, can you break up the advances book into fixed and floating, and within floating, how much is, you know, T-bill linked, and how much is repo linked?

By and large, it is all floating only. Fixed interest, very, very few fixed interest portion. This around 70 percent, it is EBLR. And there are deposit loans and other kind of loans where it is fixed loans. Other than that, by and large, it is T-bill rate is also there. Sir, around 70% you can take, 70% plus EBLR rate, and MCLR is around 5% or so, but majority is that, yeah, it is all linked to T-bill rate. Right.

So entire 70% is T-bill linked.

Yeah.

And then going forward, because we have seen a huge spike in the T-bill rate, so when do you see your reset, as per the reset clause, like when does the interest rate increase on the yield side? Because in October month, we have seen a huge spike in the T-bill.

No, see, it is last year also, it is all bottomed out. Assets are reprising immediately. Within a gap of three months or so, liabilities are not so. It will be having naturally an impact on the NIM. But it is already bottomed out during last year. Now, what I feel it is, since it is in the rock bottom, whatever up in the increase, definitely within three months it is getting repriced. I don't think it will affect with regard to, yeah, when it is increasing, a trend has already begun. It is increasing also, you are aware. Therefore, I don't think it will further go down. Whatever is repricing is happening. Happened earlier, it is happened, complete. Now, either it will be stagnant or it will be going up. Science have already shown that it started moving up.

So that October spike on T-bill rate, we will get in the month of December, January like that?

Normally, on various days, three months gap, within three months it is happening.

Okay, sir. Thank you and all the best and congratulations again.

Thank you. Thank you. Thank you, sir.

The next question comes from the line of Pranay Delia with Panchatantra Advisors LLP. Please go ahead.

Sir, many congratulations on the best set of numbers that we have seen in a couple of years. You have performed on all operating levels that you promised when you took over. As for the future progress of the bank, I have one small question. All private banks have a very strong, you know, retention plan for employees by their ESOP level. We have found Karnataka Bank lacking on that one. So, good people will only stick if you have a good ESOP plan. Has the board discussed this?

You have raised the right point, but attrition rate in Karnataka Bank is very low. I am guaranteeing you, we are focused on retaining the talent, which we will not leave to go outside. And talented people, talented bucket is there with regard to the human resources. And with regard to this incentivization and all, it is already there. It is as and when these things are coming to us, definitely it is discussed. It is a matter of discussion in the board.

That's all that I had to ask on the question front. What is the first half we have seen has been fantastic. The second half will be better than the first half, sir?

So this doubt you had earlier also, whether it is this growth is stable growth. In the month, somewhere in the Q3, Q4 you asked, I said you wait for Q4 completion. You waited, and again you asked the same question in the Q1 of the current year. I said, let the quarter be over. We gave better numbers than Q4 of last year. The Q2 of this year, still better we have given. Please have confidence on us. We will give better results in the coming quarters also.

Definitely, sir. Thank you so much. Thank you so much. Wish you all the best. And happy dipavadi to the entire board.

Thank you. Thank you also to your family also. Thank you very much.

The next question comes from the line of Jyoti Khatri with Ambit Wealth. Please go ahead.

Yeah, thanks for taking my question and congratulations, sir, for delivering a very strong set of numbers. Firstly, on the drought-related things, so, you know, Marussia and Karnataka and, you know, one more state has been declared, you know, sort of drought. Yeah. So, do you anticipate some sort of, you know, poses, do you anticipate some sort of impact coming to you in your Agree book, Agree Gold loan book? How do you assess the current scenario and the impact on your loan book?

Yeah, good evening, Jyoti. Thank you very much for coming online. Yes, you are right in asking that question. Scanty rainfall this year, no doubt about it. This rainfall in the previous quarter, some of our investors has asked this same question. I told then also, it is not new to us. Either there will be flood or there will be drought. We are not free from both. Very average rainfall, wherever it is, depending totally on rainfall, it is very minimal. Today's scenario, because of the irrigation facilities and all, is there. But rain itself is drastically reduced this time. And there are excessive rain in the northern part somewhere. All these are common. But we are very watchful, we are very on our guard, we take all monitoring system, everything is in place. I am, right now, I am not foreseeing any such serious problem. And yes, problem, how long this drought condition will continue, or else suddenly there may be heavy rain also, flooding situation, maybe there also in the northeast monsoon time, which we do not predict right now. But right now, I don't think there is immediate serious problem.

Okay. Great, sir. And secondly, on the ECL provisioning side, have you assessed how much incremental provisions you will be, you know, required to make? Any assessment on that side?

See, we have CRAR 20.36% comfortably, but when this is going to come from 1st April 2027, we are continuously studying that. As this question was there on earlier occasion also, this 1% to 1.5, 1.75% impact may be there. That is what we are continuously working on that. And we have taken enough measures with regard to, you must have seen from the presentation also, recovery under NPA, controlling stress. Stress has improved a lot. To the extent of improvement in the stress also, the burden from the ECL will come down. We are guarding ourselves with regard to that, and there is additional, as per the guidelines, it is not that even if this percentage, as I said, 1 to 1.7%, still entire hit can be taken as per the requirement of bank can take, or it can be spread over to the 5 years also, which we are working on it. How to do that, depending upon the best numbers coming, we will plan it accordingly. Okay.

And is it that this amount can be adjusted in the network as well?

Pardon? Sorry?

Is it possible that, you know, as per the RBI guidelines, I am not sure on that side, if this incremental provisioning that is required can be adjusted against the network?

That all, it will be done as per the guidelines, whatever is available, what best, depending upon the bank's policy and regulator prescription, auditor's requirement, it has to be done with. We have no choice there. Provision is there.

Okay. And just one last question from my side. So your term is ending, you know, in November. So anything that board has decided, whether you will continue ahead or, you know, a new one is coming in and what is the status on that side? If you can just give some color. So I guess, you know, we will get a lot more clarity on that side.

The board is always proactively deciding whatever is required to be taken. They are taking the decision. Kindly wait and see. The decision will follow soon.

Okay. Thank you, sir.

Thank you.

Bye. The next question comes from the line of Sushil Chokshi with Endos Equity Advisors. Please go ahead.

Congratulations to Team Karnadaga for excellent performance. Sir, can you throw some light on the pipeline which is emerging for the Q3 and Q4 between RAM and corporate book? Second thing, Bharat needs new businesses emerging out of India, be it defence, space, lot of R&D related to pharma and many such. And Karnataka, Tamil Nadu, leading the manufacturing hub for EV and many other such startups. Now, all your peer banks are focusing that we lend more in the same states. How are we emerging better? To emerge better, what are we doing with our HR and digital processes? And to underwrite business that we garner a better share compared to our peers?

Yeah, good evening and thank you, Sushilji. Yes, what you said is definitely makes sense for us. As I told you with regard to the growth in Q3 and Q4, definitely, yes, whatever we have planned, we are quite sure of achieving that. And I was telling earlier also, I stand by it even today also, 15 to 20 percent growth in advances, 15 to, the sectors which I said, particularly RAM, RAM sector, under RAM, EGRI, MSME, and other, other which are coming well within the definition of RAM. And we have, with regard to our guidance, we are at 56% under retail as on date, and mid-corporate 20%, large 24%. The guidance was given earlier, we stand by it, from 56% retail to taking it to 60%, mid-corporate 20%, from 20% to 22%. We want to reduce under large corporate from 24% to 18%. As you know, it is maintaining all these while focusing on these various sectors, be it pharma or some industries and all. If we want industries, we have to go to Tamil Nadu belt, as you rightly said, or trading and other sectors coming to the north, Agri and or in Karnataka. All these are focused areas. I'm quite confident, and for the past six to nine months, whatever we are targeting, by and large, it is going in the same direction. I'm quite sure that whatever guidance we have given, we are meeting that.

I'm sorry to interrupt, Sushil. I would request you to rejoin the queue. Thank you. The next question comes from the line of Yash with Danti Equities. Please go ahead.

Hi, sir. Congratulations on a great set of numbers. Thank you. So, just two points from my end. One is, obviously, H2 is always stronger for banks and all financial institutions. I think 55% to 65% of your business comes in H2. And since you've already delivered such great numbers in H1, as a banker, what are your expectations going forward in H2?

We have committed, we have AOP, approved AOP. We have set that from 83,000 to 98,000 we have set. By and large, first quarter we have added business of around 5,000 crores. Second quarter we have added around 10,000 crores. What we had planned, entire year adding around 33,000 crores of business, 15,000 we have added already, 18,000 crores of business, we have to do it, and I still maintain 10 to 15 percent growth in liabilities, 15 to 20 percent growth in advances. Overall growth, ultimately, it will come. The growth rate is around 15%. We will stick to that, and we will try to make all efforts. Having achieved good numbers in H1, as you rightly mentioned, Q3 and Q4 are most happening quarters. I am quite sure that in the remaining these two quarters also, probably I can tell you at this stage.

Right. And, sir, are there any major recoveries that we're expecting or anticipating for H2, point number one? And can you talk more about asset quality and credit cost, you know, moving towards H2? Because, again, based on your performance in this quarter, things are looking great asset quality-wise. You've slowly increased your PCR to a decent level. So, please give us more commentary on asset quality going forward in H2. Because I think some participants also raised concerns with, you know, Agri and actor loans in other banking concords. So, I just want more commentary on asset quality.

As I mentioned earlier in my previous quarters also, I have told we have zero tolerance for NPA as well as stress. From that, taking that as a focused area, we have been working through our team, national team, and 15 teams spread over, collection teams, which have spread over to 15 regions. We have effectively controlled the stress and slippage ratio GNPA and NNPA while improved substantially 3.40 percent. As on 31st March 25, it has come down to 2.27 as of date. So 31st March 25 has come down to 0.74. Quarter on quarter, there is an improvement. How it was possible is controlling the stress only. When we control the stress, slippage also will be automatically come down. So main focused area is to control the stress only. When the stress is controlled, slippage comes down. That is why our slippage ratio, gross slippage ratio has come down from earlier. It was September 25, if you see, it was 0.86, and it has come down to 0.11. So also, net slippage ratio, which was as high as 0.75 in September 25, came down to 0.11. In terms of absolute numbers also, stress has come down. The main focus area is that only. Therefore, going forward also, I am quite sure that there is no threat as far as stress is concerned. See, something beyond our control will be there. You asked one more question with regard to recovery. Yes, some recovery what happens, we are hopeful of recovering in the same quarter, it gets migrated to the next quarter. Sometimes it is because of various reasons. In the previous quarter, also, we were expecting some major recovery. Had it happened, it would have been much, much better. But if it has not happened in Q2, it will definitely happen in Q3. Definitely, numbers will further improve. Some major one or two accounts are also there. With that, GNPA as well as NNPA also going to improve further.

Right. Is it possible for you to talk about the size of these recoveries in Q3?

See, recovery is a continuous effort. Sometimes, suddenly, some recovery which we have not anticipated also will happen. Whatever, as I told you, in the Q2 should have happened, it will happen surely in Q3. Sometimes, it will happen immediately. Sometimes, it takes a little longer time. This Q3 will be a big number, will happen. Kindly wait and watch. Whatever assurance I have given, I was able to maintain that. Kindly wait and see.

No, that's great. I think I got all the assurance that I really wanted. And based on your...

Sorry to interrupt, Iyash. I would request you to rejoin the queue. Thank you. The next question comes from the line of Shruti Agrawal with Narnolia Financial Limit, Financial Services. Please go ahead.

Good morning, Shruti.

Operating income, no doubt, has gone up 37%. We want to increase the operating income through various measures, including improving the other income, interest income, everything, so also cutting the cost and taking all leverages of IT. See, IT is one area where continuous investment is required, and we have seen and assessed, out of 100 rupees invested, everything is not available for the purpose of business. 40-50% is going for licenses and upgrades. Another 20-25% for regulatory and compliance requirement. Around 25-30% is available for business. Suddenly, you cannot expect that everything will get converted into return on IT. So, it is a continuous effort. We are doing that. We are focusing on that. Lot of investments we are doing. Every year we are budgeting. Couple of major investments also going this financial year also. While I am telling, while investing in IT, we should also focus on how to improve our operational efficiency is a challenge. Either we have to do the increased business or we have to generate fresh income or reduce the expenditure. No doubt about it. Therefore, this IT investment through digital journey, AI, some areas we have focused, three, four areas we have focused, definitely that benefit will come. While telling that, since you mentioned about cost-to-income, if you see Q4 of 25, the cost-to-income ratio was as high as 66 percent, and that is Q4 stand-alone. The entire year it was at 60%. Continuously we have focused, we have brought down. Now it is standing at 54%. 54%, a 2% improvement compared to the previous quarter. We are completely focused on that. We are totally leveraging technology to the business. That much assurance I can give you. And, and we will, guidance is, yes, we are, as per the guidance, it is 52% or 51%, we will focus on that. Sometimes the result will happen immediately, like recovery of NPA. Sometimes it gets postponed to the next quarter. Definitely we will take the full advantage of that.

Thank you, sir, and thank you for the coming quarter.

Okay, thank you.

The next question comes from the line of Sarket Kapoor from Kapoor Company. Please go ahead.

Yeah, Namaskar, sir. I hope I'm audible.

Yeah, yeah. Good evening, Sarket.

Yeah, good evening, sir. Sir, as you were alluding that we are looking for our advanced growth in the vicinity of 15 to 20% for H2. I just missed your comment on the scene. Can you reiterate what is the advance good, or if you could just outline to us, what is the NII growth that we may look forward for the remaining part of the year or for H2?

See, we have focused, we have continuously focused on an average growth of 15 to 20% in advances throughout the year. And as I mentioned to somebody else while replying to the query, the most happening quarters are Q3 and Q4. When we have generated some good numbers in Q1 and Q2, I am quite optimistic that in Q3 and Q4 also, we will be able to do much better than the Q1 and Q2. And since 15 to 20 percent growth in advances will give average of 18 to 19 percent YOY growth. We are focusing on that, and I cannot give you big number and deliver much less than that. No, we are very much. Therefore, I said, on an average 15 percent growth in business, while in advances 15 to 20 percent, there we are committed and we are hopeful we will achieve. So, also the end result, that NIM, NII, everything is depending upon achievement of that target. We are focusing on RAM, RAM segment, while maintaining our business share in that composition of retail, mid-corporate, and corporate. Right now, we are in retail 56 percent, mid-corporate 20 percent, large 24 percent. Retail, we want to have a share from 56 to 60 percent, mid-corporate 20 to 22 percent, and we, as a policy, we want to reduce the dependence on bulk. We want to reduce from 24 to 18. These are the broader guidelines or guidance which we have.

Sir, when we look at our treasury portfolio, I think for this quarter, even our treasury income must have been affected because of the hardening of the 10 years and the higher GSEC yields. So what has been the impact on our treasury portfolio because of the hardening of the yields?

No, we are working cautiously. We are duly taking into account the cost-benefit analysis. We are very careful. And with regard to the funding arrangement also, we have adequate measures available with us. We have planned. Alco is meeting regularly, and we are working out in bits and pieces, everything. HFT portfolio, we have investment portfolio itself in total 27,000 crores. Therefore, HFT portfolio is also very small. We will not be affected too much. We are cautious. We will be moving very cautiously.

Thank you. Ladies and gentlemen, that was the last question for today. Today, I would now like to hand the conference over to the MD and CEO, Mr. Raghavendra S. Bhatt, for the closing remarks.

Yeah. Thank you, Alaric. Yes, as we wrap up today's call, I am glad to reiterate our unwavering commitment to shaping a forward-looking, governance-driven institution that honors its historical roots while successfully navigating this fast-evolving era. By continuing to scale our retail and MSME lines while optimizing funding costs, we are completely certain of our ability to maintain this healthy growth momentum and deliver long-term value to our stakeholders. Thank you once again for your insightful questions, your continued reliance, and your invaluable collaboration in charting the next phase of Karnataka Bank. Thank you very much to everyone, particularly thanks to Mr. Alaric. Thank you.

Thank you so much, sir. Ladies and gentlemen, on behalf of Karnataka Bank, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.