CARE Ratings assigns ‘A1+’ rating to Karur Vysya Bank’s short-term fixed deposits

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Karur Vysya Bank (KVB) has been assigned an ‘A1+’ rating for its short-term fixed deposits aggregating ₹12,000 crore and an ‘AA’ rating (Stable) for its fixed deposits by CARE Ratings.

The rating agency opined that the ratings taken into account KVB’s long track record of operations, with a diversified advances profile, comfortable capitalisation levels, stable resource profile, improved asset quality and healthy profitability levels.

According to CARE Ratings, securities with an ‘A1’ rating are considered to have a very strong degree of safety regarding the timely payment of financial obligations. Such securities carry the lowest credit risk. The “+” modifier reflects the comparative standing within the category.

Further, securities with an “AA” rating are considered to have a high degree of safety regarding the timely servicing of financial obligations. Such securities carry very low credit risk.

A ‘Stable’ outlook indicates the expected stability (or retention) of the credit ratings in the medium term on account of the stable credit risk profile of the entity in the medium term.

The agency noted that KVB’s advances grew by 16 per cent year-on-year, reaching ₹74,423 crore as of March 31, 2024, compared to ₹64,168 crore on March 31, 2023.

Improving NPAs

Further, in the last two years, the bank’s asset quality has significantly improved, with Gross non-performing assets (GNPA) and Net NPA (NNPA) reducing to 1.40 per cent and 0.40 per cent, respectively, as of March 31, 2024, from 2.27 per cent and 0.74 per cent on March 31, 2023, due to lower slippages and better recoveries.

The agency took note of the bank’s stable resource profile with retail term deposits/total term deposits at 80 per cent as on March 31, 2024, against 85 per cent as on March 31, 2023, and current account savings account (CASA) of 30 per cent as on March 31, 2024, against 33 per cent as on March 31, 2023.

However, KVB’s rating strengths are partially offset by the moderate scale and regional concentration of advances, it added. As of March 31, 2024, KVB operated across a network of 838 branches and has a strong presence in South India with Tamil Nadu comprising 45 per cent of the portfolio.

The old-generation private sector bank’s NIM (net interest margin) in H1FY25 remained stable at 3.8 per cent (Previous Year: 3.8 per cent in H1FY24). Non-interest income (as a percentage of average total assets) improved to 1.6 per cent in H1FY25 from 1.4 per cent in H1FY24, the agency said.

The Bank’s Pre-Provisioning Operating Profit improved to ₹1,562 crore in H1FY25 from ₹1,286 crore in H1FY24. “With stable asset quality levels, credit cost remained at 0.6 per cent (PY: 0.6 per cent in H1FY24). Thus, the company reported PAT of ₹932 crore in H1FY25 against PAT of ₹737 crore in H1FY24,” CARE Ratings said.