Hit by a slowdown in credit offtake and adverse capital market scenario, Karur Vysya Bank (KVB) has reported a dismal 5% growth in interest income in 1QFY02. The bank's profits grew by a marginal 2%.
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While investment income of the bank declined by 4%, interest on advances grew in double digits. Other income of the bank too soared by 86% and accounted for 14% of total income (8% in 1QFY01). The bank's operating margins however, declined by about 128 basis points resulting in flat operating profit growth.
During the quarter the bank made higher provisions and contingencies, which further put pressure on profit growth. Its cost to income ratio at 39% and effective tax rate at 21% declined marginally. The cost to income ratio of the bank is already on the lower side compared to its peers in the banking sector.
KVB's advances and deposits grew by 25% and 17% respectively in FY01. Its credit to deposit ratio of 62% also improved significantly, compared to 59% in the previous year. The bank has projected to achieve a growth rate of 11% in deposits and about 15% in advances in FY02. The target is set considering the declining credit offtake in the industry and could be achieved comfortably. The bank's capital adequacy ratio of 16% is likely to supplement its future growth rates.
The bank is, however, moving at a snail's pace in technology upgradation. Although, 80% of its business comes from computerised branches, anywhere banking has been introduced in only 3 branches. Also, it has installed just 3 ATMs till date.
At the current market price of Rs 234, KVB is trading at a P/E multiple of 2x and Price/Book value ratio of 0.5x its 1QFY02 annualised earnings. The bank has proposed to issue Bonus cum Rights shares with a premium of Rs 35 per share in the ratio of 1:1 subject to the approval of the Reserve Bank of India. The bank's valuations are however, on the lower side due to its regional nature and relatively slow technology initiatives.
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