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Gold loan portfolio protecting asset quality

KVB saw a steady quarter as core PPoP was in-line. Loan growth was healthy at 6.6% QoQ mainly led by offtake in commercial/corporate. Bank sees no major stress in gold loans, supported by a digitized and central margin-call mechanism. KVB guided a loan growth of 18-20%; it could be higher (we see 22%). We are optimistic about KVB; while TWO recoveries are reducing, the bank has de-risked its business model given the increased share of gold over the last 2 years. This would imply lower recoveries that would be offset by lesser slippage/credit costs. We keep multiple at 1.7x but increase TP to INR380 from INR345 as we roll forward to Sep’28 ABV. Retain ‘BUY’.

Stable quarter with core PPoP in-line:

NII was a 2% beat at INR14.7bn (PLe INR14.4bn) due to higher NIM (calc.) led by better use of liquidity. Loan/deposit accretion were inline at 20.4%/16.0% YoY. CASA ratio was 27.5%; LDR was 86.6% (+173bps QoQ). Other income was lower at INR4.3bn (PLe INR5.1bn) due to lower TWO recovery and treasury; fee was 2% higher at INR2.9bn. Opex at INR7.7bn was 2.5% lower due to other opex. Core PPoP at INR10.7bn was in-line; PPoP was INR11.6bn. Asset quality improved QoQ due to lower gross slippage, at INR 1.2bn (PLe INR1.7bn) and better recovery at INR0.8bn (PLe INR0.7bn). Provisions were lower at INR1.2bn (PLe INR1.8bn); floating provision of INR250mn was created. Core PAT was 6.7% ahead at INR7.2bn while PAT was INR7.9bn.

Broad based loan growth; guidance remains conservative:

Loan growth at 6.6% QoQ was healthy, led by CoB (8.1%), corporate (11.5%); retail/agri growth was 4.5%/4.0%. WC utilization remains stable at 76-79%, with limited capex appetite amid geopolitical uncertainties, US tariffs and subdued export demand, particularly in textiles. Commercial growth was seen in sectors like engineering, trade, CRE, metal, textiles, and transport operators. Within corporate, demand was seen in EPC, CRE, infrastructure, textiles and capital markets. Retail accretion was led by mortgages; housing growth remains subdued as the bank is unwilling to match aggressive competitor pricing. Retail jewel loans declined by ~1% QoQ as pricing was not reduced to focus on calibrated growth.

NIM to remain steady:

NIM for FY27 is guided at 4%+ as moderation is expected due to limited repricing benefits in gold loans, corporate advances and pricing pressure; EBLR linked repricing would provide some respite. Bank aims to offset the impact of proposed IRDAI guidelines by increasing penetration from 1.6% to 3.8–3.9%, optimizing product mix and leveraging customer analytics to improve geographically skewed penetration.

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