Karnataka Bank Gains Buy Recommendation with Target Price of Rs 330

Karnataka Bank Posts Strong Q4FY26 Performance

Karnataka Bank has reported a strong performance in the fourth quarter of financial year 2026 (Q4FY26), with improvements across key operating parameters, including growth, margin, and asset quality. The bank's advances growth accelerated to 6.9% year-over-year (y/y) in Q4FY26, up from a decline of 1% quarter-over-quarter (q/q) in the previous quarter (Q3FY26). This growth was led by strong traction in corporate loans, with the management guiding for a 15-20% growth in the financial year 2027 (FY27).

The bank's net interest margin (NIM) improved by 15 basis points (bps) quarter-over-quarter (q/q) to 3.07%, driven by higher yields and lower cost of funds. Lower operating expenses (opex) and moderate credit costs also supported profitability. Looking ahead, the management expects the margin to remain broadly stable, supported by a favorable shift in loan mix towards higher-yielding segments.

Asset Quality Improves Sharply

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Asset quality also improved sharply, with gross non-performing assets (GNPA) declining by 54 bps q/q. This decline was driven by sharply lower slippages, while the proportion of capital to risk-weighted assets (PCR) improved by 417 bps q/q. With stable margin, controlled opex, and healthy asset quality, we expect the return on assets (RoA) to sustain near 1% over the medium-term.

Recommendation

We maintain a BUY rating on Karnataka Bank with a 12-month target price (TP) of Rs 330, valuing the stock at 0.8x FY28e price-to-book value (P/BV).