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.

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:

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.

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.

Karnataka Bank Limited has completed the allotment of equity shares under its employee stock option scheme, marking another step in its employee incentive program. The bank announced that 17,501 equity shares have been allotted to employees who exercised their vested stock options under the established scheme.

Share Allotment Details

The allotment was executed on February 9, 2026, with approval from the Managing Director & CEO. The shares carry specific parameters that define their value and structure within the bank's equity framework.

Regulatory Compliance

The allotment was conducted in accordance with regulatory requirements, specifically under Regulation 30 and other applicable provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Karnataka Bank has informed both the National Stock Exchange of India Limited and BSE Limited about this corporate action, ensuring full transparency and compliance with listing obligations.

Employee Stock Option Scheme Framework

The shares were allotted to employees and grantees who exercised their vested options under the KBL Employees Stock Option Scheme 2018. This scheme represents part of the bank's broader employee incentive and retention strategy, allowing eligible employees to acquire equity stakes in the organization. The exercise of vested options demonstrates employee confidence in the bank's prospects and provides them with direct participation in the institution's growth.

Corporate Communication

The announcement was made through official communication to stock exchanges, with Company Secretary & Compliance Officer Sham K signing the disclosure document. The bank maintains its registered and head office at Mahaveera Circle, Kankanady, Mangaluru, and continues to ensure proper dissemination of material information to stakeholders and regulatory bodies.