| The Karur Vysya Bank Limited | ||
| Rating reaffirmed at 'CRISIL A1+ '; rated amount enhanced for Certificate of Deposits | ||
| Rating Action | ||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||
| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the certificates of deposit of The Karur Vysya Bank Limited (KVB).
The rating continues to reflect the bank’s comfortable capitalization and stable retail resource profile, improving asset quality and profitability. These strengths are partially offset by small scale of operations with geographical concentration. |
Analytical Approach CRISIL Ratings has considered the standalone business and financial risk profiles of KVB |
Key Rating Drivers & Detailed Description Strengths:
KVB has comfortable capitalisation metrics as indicated by Common Equity Tier I (CET-I) capital adequacy ratio (CAR) of 15.6% (7.6% higher than the regulatory requirement), and overall CAR of 16.5% as on June 30, 2024, compared to 16.7% in fiscal 2024. The capitalisation profile is supported by the bank’s diversification towards agricultural gold loans, housing loans, vehicle loans, loan against property (LAP) etc. The networth to net non-performing assets (NPAs) coverage ratio improved to 35.2 times as on June 30, 2024, from 33.7 in fiscal 2024 and 18.3 times in fiscal 2023.
The bank's overall deposits increased by 14.5% on an annualized basis, reaching Rs 92,349 crore as on June 30, 2024, up from Rs 89,113 crore at the end of fiscal 2024. The bank has cultivated strong relationships with depositors in semi-urban and rural areas of Tamil Nadu, Andhra Pradesh, and Telangana, which together account for approximately 73% of the total deposits as of June 30, 2024.
The Current Account and Savings Account (CASA) ratio also remained stable at ~30% as of June 30, 2024, and as on March 31, 2024. Additionally, the bank has a stable term deposit base, with retail deposits (the deposits below Rs 1 crore) constituting ~72% of its term deposit base as of June 30, 2024. While the high proportion of retail deposits enhances the stability of the bank’s resource profile, maintaining the CASA deposit ratio will be crucial in further strengthening the overall deposit profile of KVB.
GNPA and NNPA of KVB stood at 1.3% and 0.4% respectively, as on June 30, 2024, as compared to 1.4% and 0.4% in fiscal 2024 (2.3% and 0.7% for fiscal 2023). This improvement largely stems on account of healthy recoveries along with reduction in the share of corporate loan book. Corporate book as a % of total advances have reduced from 20.8% in fiscal 2023 to 18.7% for fiscal 2024 and further to 17.6% in Q1 of fiscal 2025. Additionally, bank has been focusing on corporate loans predominately in A and above rated companies. The share of A & above rated corporates stood at 35% as on June 30, 2024. Therefore, the credit cost on average assets has improved from 1.2% in fiscal 2023 to 0.7% in fiscal 2024 to further 0.5% (annualised) in Q1 of fiscal 2025. Moreover, the bank has also been maintaining healthy provisioning coverage ratio (PCR) of 71.3% as on June 30, 2024 and 71.4% as on March 31, 2024.
Improvement in credit costs has also supported return on assets (RoA), which has improved to 1.7% (annualised) in Q1 of fiscal 2025 from 1.6% in fiscal 2024 and 1.3% in fiscal 2023. The net interest margin (NIM) (on average assets) has also remained healthy at 3.8% (annualized) for Q1 of fiscal 2025 and 3.9% for fiscal 2024. Going forward, the profitability metrics is likely to sustain at healthier levels, supported by steady net interest income (NII) and fee income. Any significant impact on the earnings profile due to any unanticipated slippages and, therefore, credit costs remain a key monitorable.
Weakness:
As on June 30, 2024, the bank had a small share of around 0.5% of deposits and advances in the overall Indian banking system. It has limited reach, with 840 branches and 2,253 automated teller machines (ATMs) and cash recyclers as on June 30, 2024. Moreover, operations are concentrated in South India, particularly Tamil Nadu. As on June 30, 2024, about 43% of advances and 55% of deposits were from Tamil Nadu. The financial risk profile remains susceptible to adverse changes in the economic and business environment in the region because of the small scale and high regional concentration in operations. |
Liquidity: Strong KVB’s liquidity coverage ratio (LCR) stood at 185.1% (weighted average for 3 months) as on June 30, 2024. The bank maintained excess statutory liquidity ratio (SLR) of 4.6% as on June 30, 2024. Liquidity also benefits from access to systemic sources of funds, such as the liquidity adjustment facility from the Reserve Bank of India and access to the call money market. |
Rating sensitivity factors Downward factors
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About the Company About the Bank KVB, set up in 1916, is a private sector bank headquartered in Karur, Tamil Nadu. It has a network of 824 branches, primarily in south India, and 2,244 ATMs and cash recyclers as on September 30, 2023. It provides both commercial and consumer banking services. In the first quarter of fiscal 2020, it started lending digitally for retail and working capital products up to Rs 2 crore. The bank expects to use this platform for enhancing customer experience and increasing the retail client base. Gross advances and deposits stood at Rs 70,448 crore and Rs 83,069 crore, respectively, as on September 30, 2023. In the first half of fiscal 2024, net profit was Rs 737 crore on total income (net of interest expenses) of Rs 2,485 crore, against Rs 479 crore on total income of Rs 2,008 crore, respectively, in the corresponding period of the previous fiscal. |
Key Financial Indicators
*annualised |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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