Hold Karur Vysya Bank; target of Rs 33: ICICI Securities

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ICICI Securities research report on Karur Vysya Bank

Karur Vysya Bank (KVB) delivered mixed financial performance in Q4FY20 with earnings growth at 40% YoY to Rs837mn driven by higher treasury income (Rs1.4bn) and controlled operating expenses (up only 2.5% YoY). Covid-19 related contingency buffer of only Rs275mn (~6bps of loans) poses risk of credit cost spilling over to FY21E. Moratorium (as at 21st June) at 41% of advances is down from ~53% in March despite greater share of commercial banking at 32% of total loans. Asset quality improved though driven by higher technical write-offs at Rs3.5bn and asset sale to ARCs (Rs0.9bn). The improvement was consistent through past four quarters with GNPL ratio falling to 8.7% in Q4FY20 from 8.9% in Q3FY20.

Outlook

While we derive comfort from KVB’s encouraging performance in digitally underwritten new vintages and transformed business model with retail focus, lack of clarity on CEO succession and a somewhat prolonged trajectory of RoA recovery are key concerns. Maintain HOLD.

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