In the current cycle, Karur Vysya Bank has built strong resilience in growth (strong edge on cost of funds; diversified book), opex (front-loaded investments in manpower, tech) and asset quality (one of the few banks to see improving credit costs), and thus, RoA longevity. We also highlight healthy option value once the deposits/unsecured PL environment improves. We expect Karur Vysya to retain its leadership on RoA/RoE among mid-smaller private banks.
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We recently met Karur Vysya Bank Ltd.’s top brass, including business heads, at Karur. Our confidence in the quality/longevity of growth and earnings is emboldened. Karur Vysya Bank has been furnishing steady loan growth and will likely have at its disposal healthy optionality, as and when liquidity eases/lending to unsecured turns conducive.
The bank acknowledges potential moderation in NII growth in the near term due to pressure on yields besieged by an easing rate environment; but it is making sincere efforts to offset this by stepping-up TWO recoveries, TPD and other fees.
Karur Vysya sports one of the lowest net non-performing assets (0.2%) and SMA1+2 loans (<0.4%) and has <3% share of unsecured. It may well be among the few banks to see lower credit costs YoY in FY26.
Despite factoring in net interest margin moderation, Karur Vysya’s RoA/RoE may not only exhibit resilience, but possibly even outpace peers (at ~1.6% /16% for FY26), and be in the same league as large private banks. Retain Buy; target price of Rs 300 unchanged.
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