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KVB continued with its strong performance, delivering a 4% PAT beat and one of the highest RoAs among SMID banks, at 1.7%. This was mainly led by healthy credit growth at 17% YoY/4.5% QoQ, core margin above 4.1%, and lower LLP (at 60bps), given that it has one of the lowest NNPA ratios among peers at 0.4%. The management reiterated its unwavering focus on profitability (RoA: ~1.6-1.7%) led by healthy core margins/fees and steady improvement in operating leverage. KVB is gradually pruning its large corporate book, incl. exposure to NBFCs, while ramping up its retail portfolio including secured gold loans. KVB does not see any meaningful impact from the Telangana farm-loan waiver, given that bulk of agri loans are secured by gold. Building in the Q1FY25 beat, we raise FY25-27E earnings 4-6%, and expect KVB to continue delivering superior RoA/RoE at 1.6-1.7%/17-18% over FY25-27E. We retain BUY on the stock and revise up our TP to Rs275/share (earlier Rs250), rolling forward at 1.6x Jun-26E ABV. KVB remains our top pick among SMID banks, given its strong RoA, asset quality, capital/provision buffers, and management stability.

Healthy credit growth, coupled with healthy margins

KVB posted healthy credit growth at 17% YoY/4.5% QoQ, with clear focus on ramping up its high-yielding and secured retail book. This reflects in KVB’s conscious decision to grow its retail gold loan and LAP book. On the other hand, the bank is gradually pruning its corporate book (incl. exposure to NBFCs), given higher risk weights and rising assetquality concerns. The BNPL book in partnership with Amazon (5% FLDG) has been largely stable QoQ, due to seasonality. Funding cost has been on the rise across the banking sector, as also for KVB – up by 12bps QoQ to 5.5%; but the improving portfolio mix toward the high-yielding retail book/MCLR raise led to contained margin contraction at ~6bps QoQ to 4.13% in Q1FY25. KVB expects NIM to stay well above 4% in Q2FY25 too.

Benign asset quality trend continues

Overall gross slippages remain contained at Rs1.7bn/1.1% of loans which, coupled with better growth, led to continued moderation in the GNPA ratio to 1.3% and the NNPA ratio being the lowest among peers at 0.4%. The restructured book further contracted to 0.9% of loans vs. 1% in Q4FY24, and the bank carries ~40% provision on the book. The bank does not see any meaningful impact from the Telangana farm loan waiver, given that bulk of the agri loans are secured by gold. However, it carries contingent provision to the tune of Rs1bn, for absorbing any low-intensity initial stress.

We retain BUY; top pick among SMID banks

Factoring in the Q1FY25 beat, we raise FY25-27E earnings by 4-6%, and expect KVB to continue delivering superior RoA/RoE at 1.6-1.7%/17-18% over FY25-27E. We retain BUY and revise up our TP to Rs275/sh, rolling forward at 1.6x Jun-26E ABV. KVB remains our top pick among SMID banks, given its strong RoA delivery, capital/provision buffers, asset quality, and management stability. Key risks: Slower-than-expected growth, and resurgence of NPAs in the retail/SME sector due to macro/micro dislocation.

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