KARURVYSYA Q1 FY27 earnings call.

Guidance to track

• Management maintained guidance of 1-2% above industry credit growth, noting system growth has accelerated to ~18%. However, the bank will remain selective, avoiding corporate repricing race that defeated earlier diversification efforts.
• Despite Q1 NIM of 4.26% (above guidance range), management retained conservative full-year NIM guidance pending Q2 review. Near-term visibility suggests NIM at ~4% in Q2 before potential normalization.
• Management reiterated full-year guidance for gross NPA below 1.5%, net NPA below 1%, and slippage ratio below 1%. Q1 gross slippage annualized at 1.3% remains within target.
• Management targets ₹500-600 crore recovery from written-off accounts annually, noting quarterly variation is natural due to external and legal factors. Q1 recovery at ₹103 crore versus ₹216 crore in Q4 was lower but expected.
• Bank plans to open 50 branches in first half (25 each quarter) versus 13 branches in entire FY26, focusing on extending relationship model to more branches. Cost-to-income may rise 0.5-1% due to branch expansion.

Risks flagged

• Management acknowledged a 'tight rope walk' as competition forces yield concessions to retain customers. Fixed rate book increased from 29% to 34% to hedge against rate cuts, but expects 10bps yield reduction in Q2 and acknowledged that beyond 50bps concession, it becomes difficult to compete.
• Textile sector comprises 5% of portfolio with potential export impact from US tariff uncertainties. Working capital utilization remains stable at 77-80%, but management made ₹163 crore upfront provision last quarter as precaution. Analyst raised concerns about Q2-Q3 impact visibility.
• Gold loans constitute ~30% of advances. Management noted LTV maintained at 63.7% (agri) and 56.83% (non-agri), claiming insulation even at 10-15% gold price decline. However, delayed monsoon and potential agrarian stress could impact the 92% agri-gold backed portfolio and growth rates.
• CEO indicated intention to step down within two years. When asked about board discussions on succession, management stated 'Board is already abreast of this... They are looking at it... There will be sufficient time for transition and for the handholding and for grooming.' Lack of specific timeline or candidate details leaves uncertainty.

Key quotes

• We are pleased to report that our key performance indicators are broadly in line with the guidance shared earlier. This growth has been balanced and broad-based with sustained performance across our three key priorities—growth, profitability, and asset quality.
• Though the liquidity in the market is there, it may support us but to the extent what you want as a deposit, it may not work out. We need to get our retail. We will still focus on the retail only.
• It is slowly becoming a tight rope walk in the sense that to retain them, talking about the relationship, how long you are there—all these things will work to some extent and they may give an relevance of 0.5% or something like that, and beyond that if the market is coming down, actually others are offering, so it becomes difficult for us.
• We have a safety net as far as that is concerned. If at all something balance here and there with the numbers what we have, we will be able to manage. ECL should not majorly hit us for two reasons. One is our SMA numbers are good, more or less not only now, for the last few years four five years three four years.