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Karnataka Bank Ltd
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Karnataka Bank Ltd
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Ladies and gentlemen, good day, and welcome to the conference call hosted by Karnataka Bank. [Operator Instructions].On behalf of Karnataka Bank, today's call is attended by Mr. Mahabaleshwara M S, Managing Director and CEO; Mr. Sekhar Rao, Executive Director; Mr. Balachandra Y V, Chief Operating Officer; Mr. Gokuldas Pai, Chief Business Officer; Mr. Muralidhar Krishna Rao, Chief Financial Officer; and Mr. Abhishek Bagchi, CFO.I now hand the conference over to Mr. Mahabaleshwara M S, MD and CEO, to give his opening remarks before the Q&A session. Thank you, and over to you, sir.
Thank you. Good evening, and welcome to each one of you for the con call of our Karnataka Bank on its Q3 FY '23 results. I, Mahabaleshwara M S, MD and CEO, I'm accompanied by our new ED, Mr. Sekhar Rao, who joined us on 1st of February 2023; COO, Mr. Balachandra; CBO, Mr. Gokuldas Pai; CFO, Mr. Muralidhar Krishna Rao; and CFO designate Mr. Abhishek Bagchi.I'm sure all of you might have noted that the overall performance of the bank has not only been impressive, but also consistent. On the eve of our Centenary Year celebration scheduled for the year '23, '24, our aspiration to emerge as a strong vibrant digital bank is now becoming more visible. It's a matter of great satisfaction that all the fundamentals have also further strengthened consistently and are now at a new high for Karnataka Bank.As far as operating profit is concerned, we grew by 49.27% during the quarter compared to Q3 FY '22. Further, for 9 months ended December '22, the growth rate in operating profit is 21.42%. As far as net interest income is concerned, the quarterly growth is 34.07% and year-on-year, it is 26.74% for the 9 months period ended December '22. Asset quality has also further moderated. GNPA has come down to 3.28% as against 4.11% a year ago and 3.36% as on September '22. NNPA has also come down to 1.66% from 2.45% a year ago and 2.45% as on September '22 -- 1.72% -- sorry, 1.72% as on September '22.Credit has grown by 12.51% Y-o-Y, CASA by 9.95% Y-o-Y. And now the CASA constitutes 31.91% as against 31.30% a year ago. Very interesting thing is our asset size has crossed the landmark INR1 lakh crore, and it stood at INR1,00,246 crores as of December '22. Net interest margin for the current quarter stood at 3.81% as against 3.16% a year ago. For 9 months period ended December '22, NIM is at 3.63% as against 3.15% for the corresponding last year. Return on assets for the quarter stood at 1.21% as against 0.65% a year back. For the 9 months period ended December '22, it is at 1.14% as against 0.57% for the corresponding last year. Return on equity for the quarter improved to 15.61% as against 8.50% a year back.However, for the 9 months ended December '22, it is at 14.74% as against 7.41% for the corresponding last year. PCR has also reached a new high of 80.21% as against 73.66% a year back. As far as CRAR is concerned, we are at 15.13% as against 14.15% a year ago. Excluding the current year's profit, if -- that is by excluding the current year profit, 14.15%. If current year's eligible profit is included, the CRAR would be at a new high of 16.57%. So these are some of the highlights of our Q1 -- Q3 performance results.So with these few opening remarks, now the forum is open for discussion. Over to you.
[Operator Instructions]. We have the first question from the line of Sarvesh Gupta from Maximal Capital.
Congratulations on a good set of numbers. Sir, just one point on the NIMs. So I think we have been seeing a lot of increase in our interest rate as opposed to cost of fund.
Mr. Sarvesh, sorry to interrupt you, but there seems to be a disturbance came from your line. If you would go off the speaker phone?
Is it better now?
Yes.
Yes. So the first question is on NIMs. So in this quarter, we have again seen some expansion. So where do you see the NIMs settling because there are 2 parallel effects. One is, of course, your focus is more towards RAM book. But at the same time, we are also seeing cost of deposits not increasing, which may increase in the coming quarters. So what is the expectation of the NIMs once the dust settles? Should it be closer to like 3%, which we used to do earlier? Or should it settle somewhere in between where we are right now and the 3% earlier? So that's question number one.
Yes. As far as NIM is concerned, I think in your own question, there is an answer, it could definitely be in between 3% and 3.81%. Why I'm telling like that is our yield on advance, about a year back, it was at 8.81%. Now it has improved to 9.45%. And the interest -- the cost of deposit also, about a year back, December '21, it was at 4.68%. Now at 4.54%. So this could be the best cost of deposit. So going forward, as you have rightly observed, it would -- it has already some [ UWEs ] being seen in the cost of deposits. So as a result, definitely, there will be an adverse impact on the NIM. But for March '23, most probably, it would settle somewhere around a, wide guess, could be around 3.50%. So March '24, definitely, we will have to revisit that. But for the current year, my gut feeling is that it could be somewhere around 3.50%.
Understood. And secondly, the depreciation on investments of around INR215 crore in aggregate and INR90 crores for the quarter. So what is the expectation going forward? Have we completely complied with all the change in norms? Or is there any further depreciation that we need to book in the P&L for this quarter and the coming financial year?
Yes. Good question. I would request my CFO, Mr. Muralidhar Krishna Rao, to kindly respond to this.
Yes, absolutely. I think you may be -- hello. You may be also aware that recently, Reserve Bank of India made some change in the valuation of the ASR. So we have taken INR94 crores hit on account of that. Other than that, the market related depreciation is coming down, in fact. So we don't foresee that incremental depreciation won't be there in the coming days because the market depreciation compared to the market is coming down.
There, what happened is this SR additional provision of INR94 crores, it is an onetime hit during this particular quarter, which we have fully observed. And to that extent, we have also disclosed in our SR.
Understood. And finally, sir, on the slippage side, so we have seen some uptick in the slippage as well as credit cost for this quarter compared to where we were in H1. Normally, it is observed that H1 is worse for slippages in general compared to Q3 and Q4. So are there any one-offs in the slippage itself? Or this is the usual trend that we should sort of pencil in going forward?
Slippage, as far as for the 9 months period is concerned, it is at 2.25%. Last year, it was at 2.32%. And for the full year, last year, it was at 3.11%. So as already discussed during our previous con call, this year, we are expecting it to be in between 2.3% to 2.9%. So overall for the full year. And the credit cost for this particular quarter, it is at 0.26%. For the full year, it is 0.90% -- mean for the 9 months period, it is 0.90%. Last year, it was at 1.04%. You all know that credit cost has 2 components. One is for the slippages, whatever the provision that we have made, we are in the spree of making accelerated provision also. That is the reason why our PCR has also improved and crossed 80%. So, keeping that in mind for the current year, most probably, our credit cost would be somewhere around the same figure as that of the previous year. So majority of that credit cost is on account of accelerated provision.
But the slippages are business as usual, no one-offs there this time.
It would be less than the previous year.
We have the next question from the line of Deepak Poddar from Sapphire Capital.
Sir, I just wanted to understand just a little clarity on the credit cost that you mentioned. For this 9 months, our credit cost is 0.9%, right?
0.90%. Correct.
And for the entire year, what did you say, what is our expectation?
It could be around the -- at the same number as that of the previous year. Last year, it was 1.04%.
So around 1%, right?
Yes, around 1%.
Okay. And I mean, do we expect -- I mean, increase in provision in the coming quarters or what? I mean, because you want to increase the PCR ratio?
80%, I think, Deepak, is it not a good PCR?
Yes, absolutely, it's good, right? So we are not looking for accelerated provisioning, right?
This could be even 100% PCR. But let us be realistic.
Yes, fair enough. So I'm quite satisfied with 80% PCR. So we are not going for accelerated provision. That's what I was trying to understand.
That I can't comment now. So if the situation warrants, our priority always is to make more than adequate provisions before arriving at the bottom line number.
Correct. Understood. And we have, I think, mentioned in the previous calls as well that we are looking at less than 1% on a conservative basis as a going-forward credit cost, right? So FY '24 is -- I mean, 0.5% to 1% would be a fair credit cost?
We have prepared the ground for that. If the external factors are favorable, I should say that for almost all the internal factors, we have taken care of all those aspects.
Okay. Okay. So barring any kind of external shock, a 0.5 to 1 kind of percent a credit cost in that range would be a fair range right for us going forward?
It would be a reasonable guess.
Okay. Understood. And in terms of NIMs as well, I think for this 9 months, we are -- we have a NIM of 3.6% -- 3.63%. And this entire year, you are saying we would likely be in the range of 3.5%. So do you expect any kind of NIM compression going forward?
See, the one thing which is very clear is that cost of deposit is bound to increase in the days to come. So fortunately, for us, as around 60% of my advances are linked to the external benchmark linked rate of interest, my yield on advance is gradually improving. And the cost of deposit increases is slightly lower. But I think after March 2023, so we will have some situation wherein the NIM further expansion may not happen at the present rate. See, for March '22, our NIM was at 3.18%. June '22, it was 3.33%. September '22, it further improved to 3.56%. And now we are at 3.63%. So I want to be cautious, especially in the NIM projection. That is why I'm saying that it could be around 3.4% to 3.5% for the current year. Next year, let us see. But our endeavor should always be to have a very impressive NIM going forward also.
Okay. I understand. My final question is on your growth part. I mean, how do we see the growth in terms of advances this year and next year?
Yes. See, this year, we have already clocked a Y-o-Y growth of 12.51%. That is for the 9 months period ended December '22. I am optimistic that my credit portfolio would grow at a rate of 15% as projected at the beginning of the year. Some of the important areas that we have been focusing is the agriculture, which has grown at a rate of 9%, and infrastructure has grown at a rate of 37.69%, and of course, car loans have grown at a rate of 13.63%, gold loans have grown at a rate of 6.32%, lease rental discounting has grown at a rate of 8.58% and all. So a good number of proposals, which have already been lined up and which have already been sanctioned are getting released now. That is why I'm optimistic that we should be able to have an credit growth of above 15% for the current year.
And about next year?
Let us see. Let us take one step at a time.
Sure. That's quite helpful, sir. All the very best.
See, for your information, internally, we do all these calculations for not just 1 year. We do it for the next 3 years. But there are so many factors, let us be cautious.
We have the next question from the line of Nikhil Jain from Galaxy International.
Just a couple of questions, actually. So I was just seeing that our corporate profitability, if you look at the segmental results, have been coming down over the last 1 year or so. So I just wanted to understand what is the reason for that? Actually then any color on that particular point.
Yes, one minute. Our COO, Mr. Balachandra, would take that question.
No, this is in fact, if you look at the mix of the advances, as rightly pointed out, there is growth in the large corporate advances during this particular period. Naturally, these large corporate advances are truly high-rated customers, and eventually, the rate of interest is also adjusted to the risk. So therefore, slightly the yield from the large corporate advances are a little lower. But going forward, since the focus is on retail and mid-corporate, definitely, the mix will undergo some kind of an adjustment in the coming quarter and so also the yield.
But still the yield has gone out compared to last quarter [indiscernible] corporate by 7 basis points compared to last year.
Okay. So do we expect that FY '24 the profitability would like actually revert back to, let's say, the normal one that we used to get?
Yes. Profitability is bound to improve. See, that is why I said the asset quality across all the ticket size as well as across all the segments. So it is showing a positive traction. So that is bound to have a positive impact on the overall profitability. Even if you compare it for the last couple of quarters, that has been, by and large, the general trend.
Okay. I also wanted to understand what is our -- a little longer-term aspiration in terms of growth, right? So this year, we are seeing 15%. So what is it that we are kind of looking at in terms of growing over the next 2 to 3 years? And what are the initiatives that we are actually taking to achieve, let's say, that kind of a growth? Because the system growth today, let's say, in this financial year has been, let's say, around 15-odd percent, right? The large banks [Technical Difficulty] let's say growth of 18%, 20% in advances. So that's -- in that context, I was actually asking.
Yes. Naturally, having clocked 15% by March '23, we would aim to clock a growth, which is slightly above the industry growth. That would be the approach. And if both the internal as well as the external factors are favorable, by duly adhering to all the quality standards, if there is an opportunity of still better growth, definitely, we are well prepared for that because we have a separate credit marketing vertical and regional sales executives across all our 14 regions. We have already strengthened our sales force. All such things should help us in having a better credit growth.Another important thing is we have almost this -- ensure the digital underwriting of loans to an extent of around 75% of our retail portfolio. So this is going to help us in a big way in ensuring the digital underwriting of all our retail loans by significantly improving the [ Tab ] and also the customer satisfaction or even the customer delight. So keeping that in mind, I am very optimistic that going forward, if the external factors are quite favorable, we will be the first bank to encash all those opportunities and to show a good growth in the credit portfolio as well.
Okay. And just one last point. So on the ROA side, so what is the ROA that we intend to achieve or possibly can achieve by, let's say, end of this year and what may be your trajectory for next year?
1.21% is for the current quarter. And for the 9 months period, it was at 0.57% and now we are at 1.14%. So to begin with, when I had an interaction with you all for the first quarter of the current year, I had expressed hope that we would -- we are aiming for 0.9% to 1%. Having already been there, it should be our endeavor to ensure that it is above 1%. So whether it could be 1.1% or above that, let us see, but I'm very optimistic that it would be above 1%.
We have the next question from the line of Sushil Choksey from Indus Equity Advisors.
Congratulations to Karnataka Bank team for an excellent result and best wishes for years to come. Sir, specifically, seeking a guidance on a sustainable basis, where do you see ROE, ROA -- ROE and ROA for a bank with the 12- to 24-month outlook?
Sushil ji, thank you very much. See we are on a transformation journey for the last 5 years. So here, we had aspired to have a new benchmark for Karnataka Bank in almost all of our fundamentals. Now I can confidently say that in almost all the fundamental areas, the present numbers, whatever that we have published, it is a new high for Karnataka bank. May it be PCR, may it be NIM, may it be ROE, ROA or CRAR, whatever it may be. So it is all in those fundamental areas, we have already created a new benchmark for our own performance. That's the first part of it.Going forward, definitely, we are now in a position to aspire wherein we would also [ start the ] creating a new benchmark for the entire banking industry. That is the aspiration of team KBL. Specifically, ROA, ROE and all, I can very well understand that there is very good scope. So since our asset quality-related issues are very reasonably resolved, I think definitely, we will create new benchmarks going forward quarter-on-quarter. And that is why in my statement, I have said that quarter after quarter, we have been able to give a consistent result, and I'm fully convinced that it is very much sustainable as well.
Sir, this would result into a direct benefit on NIM and cost to income both. So how would you put that both numbers also, cost to income, we are at 48% with digital transformation 5-year journey over looks very high for a bank of our size and kind of work what we do.
Yes. We were aspiring it to be between 48% to 50%. So as of December '22, this cost to income ratio is already at 47.90%. See, my gut feeling is that it would -- in the days to come, it would further come down. Of course, here one factor that we are -- I mean, betting big is on our subsidiary that is KBL Services Limited, which has started providing a lot of ground level feet on state for our bank. And as a result, my feeling is that going forward, cost to income ratio would further moderate but may not be at very significantly in the quarter-on-quarter, but definitely, it would move in the right direction. So let us hope for the best as far as the cost-to-income ratio is concerned.
Shareholders can have an aspiration to be at 40% over a period of 2 years?
We have taken note of the aspirations of the shareholders. We will strive hard.
Sir, you have been speaking about digital transformation since the time I have been tracking Karnataka Bank.
That is the result that we are seeing.
Yes. So I congratulate you on that. What kind of spend are we still able to do and will be doing over a period of next 1 to 2 years for continuing that digital transformation?
It will be significant. Mr. Sekhar, would you like to answer this question? I have my new ED who has well conversant with all our performance and the functioning of the bank since last couple of days. I would request him to just address this issue.
Right. So good afternoon or good evening, everyone. We would sustain this or increase our technology and reduce the spends over the coming 2 to 3 years. In fact, as you know, there are 2 kinds of digital journeys that we envisage. One is improving the digital capabilities within the bank, so that our customer journeys itself improves the way we onboard customers, service customers. And that has been the focus over the past 3, 4 years. And we've achieved reasonably good results there. 75% on an average is digital onboarding for the asset side, greater than 90% digital onboarding on the liability side.Now the next focus is to leverage this platform for partnerships. So over the course of next year, you will see us making significant strides on co-lending platform, building capabilities in fintech partnerships, also leveraging this for digitizing gold loan journeys. So we are well poised. On an average, our IT, what you call CapEx is in the range of INR80 crores to INR100 crores. We would expect it to be in the similar range with a marginal increase over the coming period because most of the capital expenses that we needed to do has already -- the groundwork has already been done. So -- and when compared to peer group, this is a significant number.
Sir, congratulations on joining the bank with your rich experience, which I've read about. Sir, your experience, where we stand on gold loan and South is a big market for it. Sir, if you can answer my question, currently, where we stand and where do you aspire to be in that gold loan business?
So our -- we have -- they contribute around 5%. But clearly, we recognize that this is a large opportunity given that the market that we are operating in. We have a network of around 500 branches in Karnataka alone and 70% of the network is in South. Most of the branches are well located and accessible. We have a significant presence in semi-urban and urban centers also. We plan to take this up to 10% over the next 2 years. So clearly, there are investments happening in terms of technology capability. The subsidiary that Mr. Mahabaleshwara mentioned about, they will provide manpower to augment initiatives in the -- for gold loan business. So -- and this actually is one of the strategies where despite pressure on the cost of deposits being growing over the next year, we plan to improve our mix because clearly, gold loans will help us significantly ramp up yield on advances.
Sir, my question to every participant on the management side. What are we doing to our human resource to improve our Tab and be consistent? Because on one side, we are taking initiatives for a lot of digitization, starting a lot of retail products, including gold product, trying to garner market shares from NBFC or maybe some other banks. And in the corporate book, where we stand today, my confidence in the bank was very visible and have been expressive in the public forum as well as to the management on this confidence, which is very sustainable. But I see that the bank's performance can have much higher potential than where we stand today and for that human resources are key. And without which no other bank, let the technology be existing, but the human resource is the key part to that entire piece.
That has been our hallmark for the last almost 100 years. Yes, digital and IT, it is just an enabler, but the human touch has always been there. And that is how we have been growing as a customer-centric bank. And this digital underwriting of the loans, we are not just resting at digitalizing the loans of all our retail. I have already given a task to my -- the credit department, even the mid-corporates and the big ticket advances also, I would like to see in the days to come, getting sanctioned through the digital mode. So that would definitely help us to further improve the Tab and I'm very confident that it would not get further diluted. But going forward, it would improve. And that is why I said our customers would get delighted as far as the digital touch points related services of Karnataka Bank is concerned. We will focus on that.
You mean on the not only Tab banking but from execution up to a loan sanction and -- till the agreement stage, you will be digitizing many -- very many processes?
Yes. See one product, even the documentation release, everything is released, I mean, digitalized. So we are now exploring to expand this type of service to other products also. That is why our digital center of excellence is working on that. Of course, there is the ACoE also Analytical Center of Excellence. That would help in a great way, not only for our -- this social media-related marketing but also to have more and more EWS in the performance of our portfolios and also to do some meaningful analytics and most probably the productive sort of analytics, and that is how we have planned for the future.
Only thing is for documentation aspect as far as mortgage related things are concerned, till we get the solution from the government level and registrar level, we may have to depend on manual documentation for such things. Otherwise, other things can be fully -- can be digitized, and we have the e-stamped papers and e-signed [ printed ] for all our things.
Sir, you have -- in the 100th year, you're taking a lot of transformation by Bangalore becoming your competent center, technology center, corporate trade and many things. Can you update what kind of journey have you achieved so far in there?
In that area, see, almost all of our customer facing activities, we are strengthening our presence in the city of Bengaluru. And that we could even expand to other centers. Wherever there is business, we have been strengthening that particular point. So for Karnataka Bank, it is an [ Adithya ] sort of things. So wherever we need our presence, we will definitely have our presence. Even the overseas presence also, we are now exploring for the current financial year. And Reserve Bank of India has already given a permission for us to open an overseas representative office.So in nutshell, we will not just be confining to one city. So wherever the customers want us and wherever we feel that there is -- it is a good commercial and business sense, it makes commercial and business sense, definitely, we will be having our presence there, not only the presence, but we will further strengthen it as well.
Sir, the permission granted by RBI, you will be utilizing all the gulps or any other region from more deposit garner and cross-selling India products or something else?
It's a representative office. So what are all required to be done by the representative office, that will be done.
Sir, my last question is, sir, when you've taken the efforts of the entire transformation journey, is it possible there is a change of mind at your heart?
I'm always with Karnataka Bank.
No, no, you're always there with Karnataka Bank and you'll bless the bank, I understand. But to continue the journey for maybe a year more or something like that?
Thanks for that goodwill. Continue to have that goodwill for my bank, Karnataka Bank. Thank you.
[Operator Instructions] We have the next question from the line of [ Yashwant Kumar ] an Investor.
So I have a question with respect to the additions of gross NPA. So there is addition of INR1,249 crores. So is there any large ticket because of which there is not much of a change in terms of GNPA in nominal terms?
See, as far as current, the number that you mentioned is for the full 9 months. So 9 months period, the addition was to the extent of INR1,249.21 crore. Here, the point that we need to understand is there are intra-quarter addition is also added here. So intra-quarter addition is for the particular quarter, let us say, in the first month, it might have slipped very second month, it might have been upgraded. But in both addition and reduction, that is also factored in. But for the full 9 months period, INR1,249.21 crores is the addition. Reduction is more than the addition. That is INR1,414.30 crores.Secondly, for the current quarter, we don't have any account with a balance outstanding of more than INR40 crores. So all our smaller accounts comparatively. So this would be very much under control going forward as well. It has been under control. That's why I said my slippage ratio would also be less than what we had experienced in the previous year. And going forward, it would further moderate.
Okay. So is there any number -- I mean in the last quarter, how much of it has got added into the GNPA?
NPA addition was INR377.14 crore, reduction was INR343.12 crore and about INR34.02 crores net addition got added to our GNPA numbers.
And coming to the corporate lending, I've seen it has been increasing from 18% to 23%. And having said this, I'm looking at the CASA, I mean, obviously, when we lend to the large corporates. So I mean there is a downtick with respect to CASA. So do you foresee that or any -- I mean, is there any reason why it is not helping in CASA?
I didn't get your question.
We have been increasing with respect to corporate lending from 18% to 23%, correct?
Correct.
So now -- sorry come again?
22.91% as of December '22.
Right. So will that help with respect to CASA improvement? Or is there any specific reason why we are improving more on large corporates?
See, here, it is not just a question of lending. It is providing complete banking solution to that corporates by onboarding them for other banking products as well, including the salary accounts. So that aspect we have already taken care of during the -- our ongoing CASA campaign. So that is how this particular initiative. So it could be in the range of 20% to 25%. So 20% of corporate exposure is our guiding these sort of things. But depending on the market condition, it may hover between 20% to 25%. But as you have rightly pointed out, it has already starting helping us in garnering not only good CASA, but also other sources of income, including insurance as well as the mutual fund to their respective employees as well. That is being properly addressed to, number one.Number two, we are also totally focused now on the government agency business. I already have a separate dedicated national head for the government agency business, and that is also progressing as per our original plan. So that is why we are optimistic that going forward, CASA would keep on improving. And most probably, it may touch around 35%. And in another couple of years, not only 35%, it may even touch 38% or 40%. So it all depends on how effectively we will be tapping the corporates as well as the governments besides our present strength of reaching out to the general public.
Okay. And coming to the number of branches. Recently, I have seen that there is like -- we have opened 899th branch in state. So when I compared it with the previous quarter, we have almost increased somewhere around 14 branches or otherwise opened 14 branches in a matter of 1 month. So are we aggressively planning to increase it to 1,000 by any chance to achieve on 100th year?
Yes. As far as brick-and-mortar branches are concerned, we are not aggressive. We are aggressive in having more and more digital touch points, number one. Number two, more and more DPUs, e-lobbies, and all such things. So that is where we are finding that it would be very cost effective and the reach and the scale is also very good. But I'm not saying that we are going to replace the physical branches. So only thing is about 4, 5 years back itself, we had visualized and I have given a business prescription to our respective departments to ensure that minimum space, maximum business. So we are adhering to that.So presently, our business premises site in those brick-and-mortar branches are around 800 to 1,000 square feet only. So that is how the number, as you mentioned, 1,000, I'm not very optimistic about that. But for us, the most important thing is business per branch as well as business per employee. And fortunately, that is showing a very, very positive improvement. In fact, over turnover per branch, about 10 years back, it was at INR111 crores. Now it is already at INR166.25 crores, turnover per employee, it was at INR9.66 crores. Now it is at INR17.44 crores. These are all the qualitative positive indicators, we are very much focused on the productivity.
Right. So yes, I mean I appreciate the kind of efforts that has been put in to increase the profitability of the bank and at the same time, maintaining the asset quality. So that shows in the number. And the presentation also clearly shows the uptick in terms of business and profitability. So I was looking at the digital channel, the POS and e-comm transaction. I am just amused -- just wanted to understand, is it not really -- is that not contributing much in terms of revenue? Because I see there is a downtick in terms of POS installation and e-comm transactions. Can you throw some light on that, please?
See, I think you have -- what you have observed is correct, POS and e-comm transaction. I would request you to go to the next slide, that is the UPI transaction. You see the consistent growth there. So UPI-related transactions are becoming more and more popular. I need to have the basket of all the digital channels. So about 2 years back, as you have mentioned, as you have noted, the ATMs for popular channels, so gradually, it has been the mobile banking as well as other things. This is a common trend. So we are in tune with that trend and UPI is gaining momentum.
I definitely agree on that. So my point is more of POS installations because if I'm not wrong, UPI transactions does not help in terms of revenue of the bank, if I'm not wrong.
Yes, some revenue is there. Yes.
When compared to POS?
Compared to POS, and digital UPI transactions, such things, POS is most -- more cost intensive.
Even POS is mainly the QR code which are being used.
Sorry, I didn't get that.
Yes, 1 minute, I will request Mr. Sekhar to respond.
This is pretty much in line with the industry trend. Now the POS [ MDR ] rates are very tightly given that UPIs going up are very tightly negotiated by merchants. So -- and a lot of transaction is moving to QR codes and even merchants are promoting that. Because otherwise, on the MDR, he's out of pocket. So future MDR cost installations across the board is coming down and QR and UPI is catching up. So hence, we also are a little circumspect in this space and not investing too much because there is also a cost of infrastructure, terminals, et cetera, to be maintained. So that's -- and it's fairly in alignment with the trend being observed in peer group with respect to this space.
Yes, that helps me understand why we are -- I mean I'm just trying to understand that we are in the right direction in investing in the right way. So that is the reason why I asked this question. And one last question, which has been there for quite some time about the fund raising for the future expansion. So I know that we have already raised and approved -- got approval from the shareholders also. So is there any update from that side?
Shareholders' approval, we don't have. That is expired. But the CRAR even without capital augmentation, he is showing a very healthy trend. See, you are aware that as of March '22, it was at 15.66%. I think with the internal profit accrual itself, it would go up by another 100 basis points. So definitely, as and when it is needed or as and when the market is conducive, our Board would definitely interact toward this, and they will take a decision, but definitely not for the present.
We have the next question from the line of Deepak Poddar from Sapphire Capital.
Yes, Deepak, you have a second round of questions.
Yes, just a clarification, I wanted, sir. So sir, you mentioned there was some -- around INR94 crores of hit, right? So can you just elaborate what will that hit? I missed that.
Yes. That was the security receipts we had, RBI in their October '22 circular, they have changed the provision-related norms. So as a result, we have arrived at the requirement of additional provision at around INR94 crores. So during this quarter, we had fully absorbed that hit.
So that is accounted in where, other income?
No, this is...
Accounting practice today is the depreciation on investment, it is not a provision on operating on the debit side. Rather, it is deducted from the other -- on the credit side, okay?
So basically, it's kind of factored in the other income, right, this amount?
Adjusted from the other income.
Okay. Now, so if I adjust that, so our other income rate would have been around INR300 crores, right? So from fourth quarter onwards, I mean, this INR94 crores will not come, right? So this INR250 crores to INR300 crores is a going-forward rate that one can assume, right, in the other income side?
Perfect. Other things remain in same. You're right.
But you also assure me that there would not be any other onetime hits, crisis, and no surprises.
Fair enough.
Your analogy is correct. But these are all the natural things, we should be ready for that. See, always prepare for the worst and expect the best.
Fair enough, sir. So I think you guys are doing a fantastic job, sir. So all the very best, yes.
[Operator Instructions].
Shall we conclude?
Sir, we have one last question from the line of Nikhil Jain from Galaxy International.
Just one final question. So sir, there was some discussion about, let's say, you are, let's say, leaving the bank. So I just wanted to understand what is the update on that? And if any has been kind of selected as your replacement?
Yes. See, my second term as MD and CEO, would conclude by 14th of April '23. So keeping that in mind, my Board is very effectively involved in identifying a suitable replacement. And of course, we are very happy that we have already -- Karnataka Bank never had an Executive Director. So ever since we had crossed INR1 lakh crore of business, we have been aspiring to have an ED. And now we have an ED also. And soon, the process related for this MD and CEO's appointment would also be addressed effectively. And it is basically Karnataka Bank is a process and system-driven organization.So here, men, they are not that significant. No doubt, yes, they play a very crucial role. But the 100 years of history of Karnataka Bank, the legacy related things, it is professionally managed and system and process driven. And that is why I'm confident that we are a consistent and sustainable sort of business, whatever that we are aiming, we will be able to continue to deliver in the next -- second century of the Karnataka Bank as well.
So you are not seeking a third down, right?
I have already disclosed my intention to the Board, to the stock exchange, to the regulator, to the investors like you all.
That was the last question. I would now like to hand it over to the management for closing comments.
Yes. While thanking each one of you for your active participation, as I have already mentioned in my opening remarks, the year '23, '24 is Karnataka Bank's Centenary Year. We will continue to strive hard to be consistent in our performance and also ensure a sustainable performance going forward. My Centenary Year greetings to each one of you. Thank you.
Thank you. On behalf of Karnataka Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.