Anand Rathi
Karnataka Bank (Buy)
CMP: ₹45.4
Target: ₹95
The bank’s current Tier-1 stands at 10.4 per cent. In the recent quarters the bank is focussing on increasing its granular retail and SME books and selectively lend to higher rate corporate.
Currently there are concerns on capitalisation and liquidity of smaller private banks including Karnataka Bank. Yet, capitalisation of the bank looks adequate for the medium-term. With RBI’s active measures to provide adequate liquidity to banks, we expect no major impact of its liquidity. As most of the stress in the bank’s book is already recognised, we expect credit cost to moderate leading to RoE normalisation. We retain our ‘Buy’ recommendation, with a target of ₹95 at 0.4x P/ABV of its FY22e book.
Risks: High provisioning, large slippages from its agriculture and MSME books.