Karnataka Bank gains 4%, hits over 15-year high on fund raising plans

Shares of Karnataka Bank hit over 15-year high at Rs 249.95, as they gained 4 per cent on the BSE in Wednesday’s intra-day trade in an otherwise weak market after the bank announced plans to raise fresh funds.

The stock of private sector lender was quoting at its highest level since May 2008. It had hit a record high of Rs 286 on February 5, 2008. In past four months, the stock has zoomed 85 per cent. In comparison, the S&P BSE Sensex was down 0.7 per cent at 67,120 at 09:48 AM.

The board of directors of the private sector lender are scheduled to meet on Friday, September 22, 2023 to consider and to approve raising of funds by issue of equity shares / depository receipts / convertible bonds / debentures / warrants / any other equity linked securities, through permissible modes. The fund raising is subject to necessary shareholders / regulatory approvals.

Karnataka Bank is a south based private sector bank with large presence in state of Karnataka. With around 46 per cent of branches in rural & semi urban areas, the bank focusses on retail, MSME & agri segment (share of agri/ MSME at ~37.4 per cent of advances). The bank has a Pan India presence with 901 branches of which 575 branches are in the state of Karnataka.

The Bank’s management targets credit growth at 17-18 per cent in FY24E and further to double business in 3 – 3.5 years. Product development & benchmarking pricing with market has been undertaken to focus on retail loans. Further, number of home loan processing hubs has been increased from 5 to 8 to enhance capacity in retail loans. To ensure efficient and sustainable growth, partnership remains key focus area with tie-ups across financial domain including credit cards, co-lending, insurance, demat services and AMC.

Asset quality has been on improving trend with GNPA declining from 4.9 per cent in FY18 to 3.7 per cent in Q1FY24. Focus on core under writing standards overlaying digital capabilities is expected to keep slippages in control. Management targets NNPA to decline to ~1.2 per cent (at 1.43 per cent as of Q1FY24) and credit cost to remain steady at current level.

Strategy to harness core competency with focus on geographic & product expansion along with investment in digital technology is expected to aid growth and asset quality of Karnataka Bank, according to analyst at ICICI Securities. Steady margins and prudent asset quality is expected to offset higher opex thereby sustaining RoA at ~1.2 per cent in FY24-25E, the brokerage firm said in stock report.