Karur Vysya Bank (KVB) reported strong fourth quarter performance powered by higher investment income and lower provisions. The bank's interest income from advances however, declined by 6% in the last quarter with lower credit offtake.
Income from operations
Net interest income
Operating Profit Margin (%)
Provisions and contingencies
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (m)
Diluted Earnings per share*
FY02 was a challenging year for the banking sector, as demand for loans from corporate sector, which accounts for larger proportion of banks' total income declined substantially. Nevertheless, private sector banks in general outperformed the sector with a strong rise in interest income. This was achieved by increasing the proportion of retail loans. KVB however, failed to stop the slide in this core income due to its regional nature and stiff competition in the retail finance market. The bank's total advances grew by 9% in FY02.
The bank's investment income nearly doubled, as the bank was holding on longer maturity government securities portfolio, which offered higher interest income despite a sharp drop in interest rates in the last one year. However, as interest rates stabilized during the end of fourth quarter, the bank is expected to have booked trading losses in its investment portfolio, which is visible from a 23% decline in other income in the last quarter. If the bank continued to hold long maturity portfolio, it is likely to report capital losses as interest rates are unlikely to fall sharply in the current year.
Interest income mix
Interest on advances
Income on investments
Interest on balance with RBI
The bank's operating profit margins improved sharply in the fourth quarter, with a drop in cost to income ratio (from 61% in 4QFY01 to 43%). This coupled with lower provision for NPAs fueled the bank's net profits.
At the current market price of Rs 428, KVB is trading at a P/E of 2.4x and price to book value ratio of 0.6x. Over the last one month, the bank's stock has witnessed a sharp rise in expectation of increasing consolidation activity in the sector. Its higher capital adequacy ratio (CAR) of 17% will allow it to expand its business operations. But considering its peers proactiveness, the bank is still lagging behind, both in terms of technology and product expansion. Notwithstanding the good quality of its assets, valuations would be re-rated once the bank's business growth increases and it make efforts to stand in line with its private sector peers. Also, considering its regional nature (south based) it could become a take over target, which could trigger re-rating of valuations.
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