“While the bank’s asset quality traction is encouraging, concerns about high restructuring (~6.2%) and the expected increase in the cost of funds persist. However, in Q2FY23 the bank reported the highest-ever PAT in a quarter and also the highest-ever PAT in the first half of the FY,” said domestic brokerage and research firm Axis Securities.

With overall loan growth expected at 15%, improving asset quality and the management’s guidance for further improvement in G/NNPA and slippages, and NIMs being maintained at 3.5%, the brokerage believes Karnataka Bank commands a re-rating and better valuations. 

Sharing as its top stock pick for the week, the brokerage house has recommended a Buy rating on Karnataka Bank shares with a target price of ₹148 a piece. Incorporated in 1924, Karnataka Bank Limited (KBL) – is a scheduled commercial bank under the private sector.

“Furthermore, the management‘s commentary on ROA maintaining at 1% and achieving a sustainable ROE at +14% is quite encouraging. However, we would monitor the company’s performance closely to see if it sustainably achieves guided performance. Against this backdrop, we should see an upside from here on with company’s overall performance further improving in coming quarters,” the note stated.

The bank remains well capitalized with CAR at 15.3% in Q2FY23 with Tier 1 capital at 12.3%, creating enough room to support strong growth momentum for FY23, as per Axis Securities. 

“The management expects CASA to reach a minimum of 35% by Mar’23 and will further increase it to 38-40% in the next couple of years. The management’s focus to increase the CASA ratio, as well as retail TD in the borrowing mix, would aid the bank in lowering its cost of funds which should be positive for the sustainability of NIMs along with strong growth momentum in advances,” it added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.