ICICI Securities has issued a BUY recommendation for Karur Vysya Bank, maintaining a confident outlook despite macroeconomic stressors, particularly around exposure to US-exporting SME units. The report underscores Karur Vysya Bank's prudent risk management, stable financial growth, and robust asset quality—even as global tariffs threaten some industry segments. With targeted oversight and sectoral resilience, the bank is expected to sustain upward momentum and deliver returns superior to its peers. For investors, the current price point of Rs 217 offers a promising entry, with a twelve-month target set at Rs 267.

Karur Vysya Bank Presents Positive Fundamentals

ICICI Securities reiterates its BUY call on Karur Vysya Bank, emphasizing the institution’s adept management of risks tied to US-exposed SMEs and exporting industries. Despite heightened global tariffs and mild sectoral uncertainty, the bank’s direct exposure remains minimal, with comprehensive reviews and proactive provisions cushioning against immediate shocks. The analysts project stable growth, consistent returns, and continued improvements to asset quality supported by strong recovery ratios. Karur Vysya Bank maintains valuation at 1.65x FY27E ABV, with low credit costs and a superior Return on Assets and Equity profile expected over the coming years.

Risk Management: Exposure to US Exporting Units

Karur Vysya Bank has conducted rigorous scrutiny of its SME portfolio, specifically evaluating sectors exporting to the US. Total loans exposed to US-facing exports account for just 1.2% of overall advances, while the direct exposure where the US represents 60% or more of turnover is contained at a mere 0.56%. Within textiles, the most sensitive segment, exposure stands at just 0.3% of loans, further minimizing first-order impacts from US tariffs.[1]

Stable Asset Quality and Provisioning

The bank’s asset quality remains robust, highlighted by a non-performing asset (NNPA) ratio of 0.2% and a provision coverage ratio (PCR) of 97%, among the industry’s highest. While special mention account (SMA) 2 levels rose in the first quarter of FY26—mainly due to isolated customer issues unrelated to systemic or sectoral stress—overall SMA loan ratios are among the lowest compared to peer banks.[1]

TWO Recovery and Sectoral Comparison

Karur Vysya Bank's recovery from technical/write-off (TWO) pools stands as a critical contributor to Return on Assets. Its TWO pool size is over 7x that of gross non-performing assets (GNPA), and recovery rates are comparable—or superior—to other secured MSME lenders. The quality of the TWO portfolio remains high, with new, secured advances ensuring recurring recovery potential throughout FY26 and FY27.[1]

Financial Performance and Growth Drivers

The institution projects a solid financial trajectory, with key figures indicating strength across operational and net profit lines. Forecasts for FY27 estimate net profit at Rs 23.3 billion, with operating profit reaching Rs 36.6 billion. The bank’s stability is reflected in rising EPS figures, anticipated to grow from Rs 16.7 in FY24 to Rs 24.1 in FY27, driven by healthy growth in advances and well-contained cost-to-income ratios.

Stock Levels, Entry Points, and Price Targets

- Current Market Price (CMP): Rs 217 per share - Target Price for 12 months: Rs 267 per share - Price-to-Book Value: Declining from 2.0x (FY24) to 1.3x (FY27E) - Estimated RoA: 1.6%–1.7% - Estimated RoE: 15.8%–17.7%

Key Risks for Investors

Principal risks for shareholders include the potential adverse macroeconomic effects on the SME portfolio and overall loan growth, specifically if global conditions deteriorate further. An uptick in slippage rates or unforeseen impacts from US tariffs could pose a threat to stable asset quality. Despite these uncertainties, ICICI Securities maintains conviction in the bank’s proactive management and recurring recovery trends.

Valuation and Investor Guidance

With the stock valued attractively at 1.65x FY27E ABV and healthy projected returns, Karur Vysya Bank stands out for investors seeking quality within the Indian banking sector. The research house’s BUY recommendation is built on a foundation of prudent underwriting, recurring recoveries, and sectoral positioning. For those willing to calibrate for moderate risk, the recommendation is to accumulate the stock, targeting Rs 267 over a twelve-month horizon.

Bottomline: Distinct Competitive Advantage

Karur Vysya Bank’s distinction resides in its diligent risk control, sectoral resilience, and capacity for consistent growth. The limited direct exposure to stressed sectors, recurring technical recoveries, and industry-leading asset quality metrics position the bank as a prudent investment for those seeking stability with upside potential. ICICI Securities' analysis fortifies the base for sustained BUY calls, spotlighting the bank’s unique value proposition amid volatile market conditions.