News Earnings Karnataka Bank Q3 FY26 Results: PAT Declines 9% QoQ to INR 290.79 Crores Despite NIM ImprovementKarnataka Bank Q3 FY26 Results: PAT Declines 9% QoQ to INR 290.79 Crores Despite NIM Improvement
Karnataka Bank reported Q3 FY26 PAT of INR 290.79 crores, down 9% QoQ but up YoY from INR 283.60 crores. Net interest margin improved significantly to 2.92% from 2.72% in Q2 FY26, while gross advances grew 5% to INR 77,283.85 crores driven by RAM segment focus. The bank maintained stable asset quality with gross NPA at 3.32% and improved provision coverage ratio to 61.23%. Management outlined strategic initiatives for future growth targeting 15% business growth and ROA of 1% plus.
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Karnataka Bank reported its financial results for the third quarter of FY26 ended December 31, 2025, showing a mixed performance with profit decline offset by margin improvements and strategic portfolio repositioning. The bank's Managing Director and CEO Raghavendra S. Bhat emphasized the institution's focus on strengthening retail and MSME portfolios while optimizing funding costs during the earnings call held on February 11, 2026.
Financial Performance Overview
The bank's profitability showed contrasting trends across different time periods. While PAT declined on a sequential basis, year-on-year performance remained positive, reflecting the bank's ongoing strategic transition.
| Metric | Q3 FY26 | Q2 FY26 | Q3 FY25 | QoQ Change | YoY Change |
|---|---|---|---|---|---|
| PAT (INR crores) | 290.79 | 319.12 | 283.60 | -9% | +2.5% |
| Net Interest Income (INR crores) | 792.06 | 728.12 | - | +8.8% | - |
| Net Interest Margin (%) | 2.92 | 2.72 | 3.02 | +20 bps | -10 bps |
| Cost to Income Ratio (%) | 58.72 | 58.93 | - | -21 bps | - |
Business Growth and Portfolio Mix
Karnataka Bank's aggregate business reached INR 1,81,394 crores as of December 31, 2025, representing a 3% quarter-on-quarter growth from INR 1,76,461 crores in September 2025. The bank's strategic focus on the retail, agriculture, and MSME (RAM) segments drove the growth momentum.
Gross advances stood at INR 77,283.85 crores, reflecting a robust 5% QoQ growth from INR 73,644.15 crores. The growth was primarily led by MSME, housing, and gold loan portfolios, which together added INR 962 crores during the quarter. The bank continued its strategy of replacing low-yielding Inter-Bank Participation Certificate (IBPC) advances with higher-yielding loans, reducing the IBPC portfolio from INR 1,860 crores to INR 1,639 crores.
Deposit Composition and Cost Management
The bank's deposit strategy focused on improving the funding mix and reducing dependence on high-cost bulk deposits. Key developments included:
| Parameter | Q3 FY26 | Q2 FY26 | Change |
|---|---|---|---|
| Aggregate Deposits (INR crores) | 1,04,111.52 | 1,02,817.19 | +1.3% |
| CASA Ratio (%) | 31.53 | 31.01 | +52 bps |
| Bulk Deposits (% of total) | 4.8 | 5.3 | -50 bps |
| Cost of Deposits (%) | 5.43 | 5.50 | -7 bps |
Retail term deposits (less than INR 3 crores) grew from INR 65,531.80 crores to INR 66,252.24 crores, showing 6% year-on-year growth. The bank's conscious effort to curtail high-cost bulk deposits resulted in improved cost control, with the majority of deposit renewals conducted at predefined card rates.
Asset Quality and Risk Management
The bank maintained stable asset quality metrics despite some challenges. Gross NPA percentage stood at 3.32% as of December 31, 2025, showing marginal improvement from 3.33% in September 2025. Net NPA improved to 1.31% from 1.35% in the previous quarter.
| Asset Quality Metric | Q3 FY26 | Q2 FY26 | Q3 FY25 |
|---|---|---|---|
| Gross NPA (%) | 3.32 | 3.33 | 3.11 |
| Net NPA (%) | 1.31 | 1.35 | 1.39 |
| Provision Coverage Ratio (%) | 61.23 | 60.22 | 56.03 |
| Credit Cost (%) | 0.11 | 0.03 | 0.12 |
The bank's provision coverage ratio improved to 61.23% from 60.22% in the previous quarter, reflecting management's commitment to strengthening balance sheet provisions. Standard restructured advances decreased by 7.6% QoQ to INR 867.95 crores from INR 939.35 crores.
Strategic Initiatives and Future Outlook
Karnataka Bank outlined several strategic initiatives to drive future growth. Under the Agri Infrastructure Fund, the bank is exploring opportunities for post-harvest management infrastructure and community farming assets. For MSME business scaling, ecosystem tie-ups are underway, including onboarding business facilitators and Loan Service Providers for electric vehicle financing.
The bank is also launching new products including 'Soulabhya Deposit' with partial withdrawal facility and enhancements to Flexi Deposit Scheme, Supply Chain Finance, and Trust Finance offerings. Management expressed confidence in achieving a credit-deposit ratio between 76% and 80%, with current levels at 74.23%.
Looking ahead, management targets overall business growth of 15%, with advances growth of 15-20% and liability growth of 10-15%. The bank aims to achieve ROA of 1% plus by March 2026, with gradual improvements to 1.1-1.2% in subsequent years. Net interest margin is expected to return to 3% plus levels, supported by the strategic focus on higher-yielding RAM segments and improved funding cost management.
Historical Stock Returns for Karnataka Bank
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
|---|---|---|---|---|---|
| -0.70% | +1.95% | +9.54% | +24.07% | +29.32% | +235.17% |
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