KARURVYSYA Q3 FY26 earnings call.
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Karur Vysya Bank delivered a strong Q3 FY26 with PAT of ₹690 crore (+25% YoY, +20% QoQ) and NIM expansion to 3.99% (+22bps sequential), driven by 13bps sequential reduction in cost of deposits and repricing benefits from ₹400-444 day deposit products that matured in bulk. The bank's liability franchise proved disciplined—CASA grew 2% sequentially while fixed-rate loan mix improved from 15% to 23% of the book, providing NIM protection against rate cuts. Slippages of ₹154 crore (0.63% annualized) came primarily from RAM verticals rather than corporate, with majority now secured by collateral. Management raised full-year ROA guidance to above 1.85% and targets NIM of 3.9-3.95% for FY26 despite the December 25bps rate cut fully impacting Q4. Recoveries from written-off accounts are on track at ₹601 crore YTD against ₹600 crore guidance. Risks include sequential NIM pressure in Q4 as deposit repricing tailwind moderates (only 10-15% of term deposits to reprice vs 20-25% this quarter) and deliberate vehicle loan portfolio run-down due to high LGD, which constrains certain growth avenues.
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Guidance to track
- Despite 25bps December rate cut affecting Q4 fully, management expects NIM expansion from Q3's 3.88% YTD (excluding Q2 one-off) to 3.9-3.95% range for FY26. Deposit repricing tailwind moderates but fixed-rate asset mix provides offset.
- Raised from earlier ~1.65-1.60% guidance, reflecting Q3's 2.05% ROA delivery and management confidence in sustaining improved trajectory. Nine-month ROA stands at 1.87%.
- Gross NPA reduced to 1.71% from 2.76% YoY. Net NPA stable at 1.19%. Standard restructured portfolio at 0.45% of loans with 44% provision. No anticipated bunching in any vertical.
- Management reaffirms targeting above-industry credit growth for FY26. All loan verticals—retail, commercial, agri, corporate—are firing. Constraint is funding (deposit growth) rather than demand.
Risks flagged
- Only 10-15% of term deposits will reprice in Q4 versus 20-25% this quarter, meaning the 13bps sequential deposit cost reduction will not repeat. Additionally, some lower-priced deposits are rolling over at current (higher) market rates, creating mild headwind.
- Deliberate decision to not grow vehicle loans due to high LGD (150%+ capital cost), high upfront dealer commissions, and unfavorable fixed-rate economics at current low rate environment. This limits diversification of the loan book.
- Analyst raised concern about RBI's LCR modification circular effective FY27. Management estimates 2-3 percentage point decline in LCR (currently 133%), requiring adjustments to HQLA management. CFO to provide detailed impact analysis.
- Management indicated they compromised on advance growth to maintain deposit discipline and risk-reward balance. If competitive deposit pricing intensifies, the bank faces a choice between growth and margins—currently prioritizing the latter.
Key quotes
- We have compromised to some extent on the growth of the advances because on the other side when there is an issue as far as deposits is concerned, you cannot be so liberal in the pricing.
- When the rates were at a high level, the delinquency levels are high and absolutely the capital cost is 150%. With these things the LGD is also high... if we have a better avenue for deploying the fund it is better we do that.
- We are not getting the suitable premises in few of the locations. To meet our target of branch opening if we say some sort of a second rated premises and go for that we need to live with that for the next 15-20 years. That's why we told saying that we will not compromise on the proper branch premises.
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