Karnataka Bank Ltd Management Discussions

Economic Overview

Global Economy

The global economy stayed on a steady growth trajectory, expanding by 3.4% in CY 2025 on the back of strong private investments and easing inflationary pressures. Economic performance remained divergent across regions, with emerging markets and developing economies (EMDEs) growing by 4.4%, outpacing the 1.9% growth of advanced economies. Further, a softer US dollar during the year, combined with coordinated global monetary policies, facilitated consistent capital flows and strengthened demand in developing regions. The global electronics and IT industry witnessed a growing gap between the demand for and supply of key components, driven largely by the rapid expansion of artificial intelligence infrastructure worldwide. Major chip and memory manufacturers increasingly directed their production capacity toward AI related components over the course of the year, which in turn constrained the supply of conventional memory and standard chips used in personal computers, smartphones, and enterprise IT systems.

Rising input costs for memory and other key components affected the pricing of finished products and, in turn, the margin profile of manufacturers. Organizations responded by placing greater focus on managing this environment through measures such as maintaining relationships with multiple suppliers, entering into longer term supply arrangements, and closely monitoring inventory levels, in order to reduce their exposure to price volatility and supply constraints.

During the year, global inflation moderated to 4.1%, aided by lower energy costs and the normalisation of global supply chains. This stabilisation helped support corporate profit margins as well as resilient consumer spending.

Key global headwinds included a steady increase in trade tariffs and protectionist policies, which shifted global trade patterns. To mitigate rising input costs and supply chain risks, businesses actively realigned their sourcing strategies toward alternative, cost-effective manufacturing hubs, securing access to competitively priced raw materials while enhancing overall supply chain resilience.

Global Economic Outlook

Global trade growth is anticipated to moderate in the near-term as the early advantages of supply chain adjustments level off and the delayed effects of tariffs start impacting retail prices. Protracted geopolitical conflicts and geo-fragmentation trends are forcing businesses to remain adaptable, prioritise regional supply networks and varied sourcing methods to mitigate potential risks.

Capital allocation towards artificial intelligence (AI) is projected to remain a major tailwind, driven by operational efficiency improvements. Across various sectors, industries are expediting their uptake of AI-driven tools for inventory management, process automation and demand forecasting to achieve better cost controls. Additionally, accommodating fiscal policies and continuous infrastructure improvements in developed nations are set to accelerate the widespread integration of these advanced technologies. However, concerns around productivity enhancements and monetisation pose a risk of a market correction, potentially tempering the current AI investment enthusiasm.

Indian Economy

In FY 2025-26, the Indian economy navigated a volatile external environment, expanding by 7.7%. This strong growth was driven by domestic factors, including a revival in rural demand alongside a steady recovery in urban consumption.

Employment conditions stayed stable throughout FY 2025-26. The proportion of regular wage and salaried workers grew, while the self-employed segment decreased, indicating a shift toward a more formalised workforce.

Inflation stayed relatively benign over the year, as GST rationalisation and healthy financial conditions spurred economic activity. Headline inflation eased to 2.1% in FY 2025-26, aided by food price deflation and a strong, favourable base effect. Consequently, the RBI deployed cumulative rate cuts amounting to 100 basis points over the fiscal year. The repo rate was reduced to 5.25%, significantly enhancing market liquidity and access to credit.

Overnight money market rates largely stayed aligned with the policy repo rate and evolving systemic liquidity conditions. G-sec yields softened in Q1 but hardened later in the year amid fiscal concerns, escalating crude oil prices and lowered expectations for further easing following the December 2025 rate cut.

RBI Repo Rate Revision Cyle (FY 2025-26)

Source: RBI Monetary Policy

This was further exacerbated by the conflict in West Asia pushing fuel prices higher, creating broad-based inflationary pressures towards the close of the fiscal year. The INR followed a similar trend with a depreciating bias in the latter half of the year, driven by trade-related uncertainties and portfolio equity outflows.

Indian Economic Outlook

Looking ahead, Indian equity markets are expected to be influenced by evolving geopolitical developments, global financial market volatility and foreign portfolio investment flows. Amid heightened geopolitical uncertainty, most global central banks have maintained stable policy rates. In parallel, the RBI adopted a cautious monetary policy approach, remaining highly vigilant regarding the impact of supply shocks on inflation. The RBIs policy stance has remained neutral since June 2025. Throughout the year, the central bank undertook several interventions to defend the currency against volatility and encourage capital inflows, utilising tools such as Concessional Forex Swaps, Open Market Operations, and the scrapping of capital gains tax on foreign investments. Ongoing structural reforms, coupled with supportive economic momentum, are anticipated to help the economy strike a balance between sustained growth and fiscal stability. With a projected growth rate of 6.6% in FY 2026-27, India is expected to remain one of the fastest major growing economies in the near-term.

Industry Overview

Money Market Developments

Indias economic progress contributed to heightened demand for cash, marked by double digit expansion in currency in circulation (CiC) and growth in Reserve Money. In response, the RBI moderated Cash Reserve Ratio by 100 basis points (bps) to 3.0% of net demand and time liabilities (NDTL) with staggered cuts throughout the year. Driven primarily by revaluation gains from rising gold prices and a depreciating rupee, the Reserve Banks balance sheet expanded during the year.

Credit Growth

During FY 2025-26, broad-based economic growth triggered a second-half recovery in bank lending, led by the services and retail sectors. The demand for credit exhibited double-digit growth, outpacing deposit growth in FY 2025-26 and leading to a rise in credit-deposit ratio.

81.4

Credit-Deposit Ratio *

Credit growth gained pace across sectors even as deposit mobilisation trailed behind, a trend that pushed the credit-deposit ratio higher through the year. Deposit growth, while improving in recent months, remained below the pace of credit expansion for most of the year, and banks accordingly relied on instruments such as certificates of deposit to help bridge the resulting funding gap. As a result, the credit-deposit ratio of Scheduled Commercial Banks rose steadily over recent years, moving from 80.8% in 2024-25 to 81.4% in 2025-26. *

Aggregate Deposits and Credit Growth of SCBs

Industrial credit sustained momentum, supported by strong credit growth in micro, small and medium enterprises (MSMEs). Trade and commercial real estate witnessed healthy credit growth contributing to the double-digit growth momentum of the services sector. This environment led to overall non-food credit expanding by 15.9% as at March 31, 2026.

Segment-wise Credit Growth

Overall, non-food credit growth continues to be driven primarily by the personal loans sector. In the personal loans segment, housing loans saw healthy expansion, accounting for half of the personal loans. Both vehicle loans and loans against gold jewellery continued to show strong, buoyant growth, further supporting the sectors momentum.

67.0

Reserve Banks Financial Inclusion Index (FI-Index) in 2025

Financial inclusion in the country improved as indicated by the Reserve Banks Financial Inclusion Index (FI-Index) expanded to 67.0 in 2025, showing improvements across all three sub-indices, viz., access, usage and quality. The National Strategy for Financial Inclusion (NSFI) 2025-30 aims to enhance financial inclusion by improving the consistency of last-mile service delivery and effective engagement with financial products across underserved segments.

Scheduled Commercial Banks (SCB) Performance

SCBs demonstrated improvements in asset quality as the gross non-performing assets (GNPA) ratio declined to a multi-decadal low.

This improvement in asset quality supported a year-on-year decline of 19.3% in credit costs in Q4 FY 2025-26, reaching H0.25 lakh crore. Parallelly, the capital to risk-weighted assets ratio (CRAR) remained comfortably above the regulatory requirements. Capital adequacy levels remained strong on the back of low slippage, market capital mobilization and organic capital expansion through retained earnings.

Driven by declining credit costs and asset quality improvements, SCBs exhibited robust profitability. This performance highlights their high-quality capital, declining loan losses and solid earnings, highlighting their capacity to finance growth while withstanding shocks.

SCB FY 2025-26 Highlights

GNPA ratio declined to a multi-decadal low of 1.8% in Q4 FY 2025-26

Aggregate Deposits with Scheduled Commercial Banks grew by 16.2%

The Bank Credit grew expanded by 17.1%

Profitability of Banks crossed H1 lakh crore in a single quarter for the first time 4

Government Securities

During FY 2025-26, the domestic government securities exhibited two-way movements as the softening bias from better-than-expected Q1 GDP data was offset by the impact of fiscal concerns in a challenging external environment. Upward bias was further supported by the RBI changing its monetary policy stance to neutral in June 2025. The RBIs liquidity injection measures throughout the year ameliorated upward pressure during the year. With an expanded Union Budget 2026-27 and escalation of the conflict in Middle East, Q4 FY 2025-26 was marked by hardening bias.

10-year Generic G-Sec Yield(in%)

Forex

The INR gained initially with the softening of the US Dollar and suspension of the reciprocal tariffs by the US. The escalation of geopolitical conflicts and FPI outflows put significant pressure on the currency as the year progressed. This was exacerbated by the recovery of USD, supply chain disruptions in the Middle East and surge in crude oil prices. To defend the currency against volatility and support capital inflows, the RBI undertook several interventions during the year including Concessional Forex Swaps, Open Market Operations and scrapping capital gains tax on foreign investments. By the end of March 2026, INR declined to an all-time low of around 95 INR/USD.

Movement in Rupee, US Dollar, Crude Oil Price and EM Currency Index

(Index March 2025=100, Left Scale; Index, Right Scale)

Regulatory Environment

Regulatory efforts focused on unifying and simplifying existing regulations across all financial institutions while setting clear financial and ethical safety guidelines for new types of lending and financial products.

Expected Credit Loss Framework

In October 2025, the RBI issued a landmark reform in the form of the draft guidelines on Expected Credit Loss (ECL) framework. The framework introduces a risk-sensitive approach to provisioning to scheduled commercial banks, including foreign banks. The reform is aimed at improving credit risk management practices and standardising financial frameworks while aligning regulatory norms with globally accepted regulatory and accounting standards. These directions shall come into effect from 1 April 2027. The final guidelines have since been issued on April 27, 2026.

Policy Tailwinds

A series of strategic initiatives were undertaken by the Reserve Bank to reinforce financial stability and resilience, including

Tackling cyber-fraud & money mules via stakeholder engagement.

Deploying the banking cyber range for sector-wide resilience.

Executing NBFC KYC/AML risk assessments.

Boosting cross-border supervision through cooperation and training.

Focus on Financial Inclusion PM MUDRA Yojana (PMMY)

The PMMY drives significant volumes in the micro-lending segment, supporting banks to meet their priority sector lending targets. The initiative aims to facilitate credit for the MSMEs with major focus on women, minority borrowers and new entrepreneurs.

PM Jan Dhan Yojana (PMJDY)

The PMJDY has channelled billions into the formal banking system, significantly boosting low-cost Current Account and Savings Account (CASA) deposits. While serving as the delivery mechanism for Direct Benefit Transfers (DBT), these PMJDY accounts further provide banks with a captive base for cross-selling insurance and pension products.

Stand Up India Scheme

The initiative promotes economic empowerment and job creation for SC, ST and women entrepreneurs by supporting greenfield investments in manufacturing, services or the trading sector. Loans disbursed under the scheme contribute to the fulfilment of PSL obligations by the banks.

Kisan Credit Card (KCC)

The KCC provides reliable and affordable credit facilities for farmers, fulfilling short-term liabilities and working capital requirements. For banks, the replacement of one-off loans with limited, revolving liability ensures prompt repayment and reduced risk of defaults.

PM Vidyalakshmi

As part of the National Education Policy, the PM Vidyalakshmi programme aims to provide financial assistance to meritorious students through the availability of collateral and guarantor free loans, covering their tuition fees and other expenses related to higher education.

Jan Suraksha Schemes

The government has introduced the Pradhan Mantri Suraksha Bima Yojana (PMSBY), the Pradhan Mantri Jeevan Jyoti Yojana (PMJJBY) and the Atal Pension Yojana (APY) to extend social security to the underserved and vulnerable sections of India.

The PMJJY initiative was launched to provide affordable life insurance to low-income groups, providing insurance coverage of H2 lakh. Till 2025, the scheme has already witnessed over 27 crore enrolments with more than 9 lakh families receiving claims.

Cumulative enrolments under PMSBY have exceeded 58 crore, with over 1.84 lakh families receiving claims. The APY was created to create a universal social security system for all Indians. More than 9 crore individuals have enrolled under the scheme as of April, 2026.

Digital Payments

Democratised access to high-speed data alongside deep smartphone penetration is driving Indias digital transformation, facilitating digital payments across urban and rural areas.

11%

Reserve Bank of India - Digital Payments Index (RBI-DPI) Y-o-Y growth in FY 2025-26

~27%

Retail Digital Payments growth in FY 2025-26 (by volume)

~15%

Retail Digital Payments growth in FY 2025-26 (by value)

200 billion+

UPI volume in FY 2025-26

To promote the digital payments economy, regulators have focused on making the digital payments and settlements system more customer-centric and resilient against financial frauds. By linking the Unified Payments Interface (UPI) with the fast payment systems of partner nations, the framework aims to optimise bilateral remittance flows and expand cross-border merchant connectivity. Accordingly, key initiatives included reinforcing the Aadhaar-enabled Payment System (AePS), streamlining regulatory direction for payment aggregators, strengthening digital transaction authentication and deploying continuous, realisation-based clearing and settlement in the Cheque Truncation System.

Industry Outlook

The Indian financial system is projected to sustain its resilient trajectory, anchored by strong regulatory frameworks, steady credit expansion and adequate capital buffers. Healthy asset quality and well-capitalised balance sheets are expected to ensure that the domestic financial sector retains sufficient capacity to absorb adverse macroeconomic shocks.

However, downside risks to corporate profitability persist in the near term, driven by protracted geopolitical tensions and consequential supply chain frictions. Concurrently, elevated sovereign yields continue to put pressure on the valuation of financial institutions investment portfolios. On the external front, strategic initiatives are progressing to enhance cross-border payment integration.

Business Segments

		Retail, Agriculture and MSME (RAM)
				Government
Category	Retail and
		Agriculture Banking	MSME	Business
	Personal Banking
Offerings &	KBL Xpress	Agriculture & allied activities	Working capital	Agency The Bank for
Core Products	Home Loan	Farm development	finance for traders	GST and Customs
	Loans against	Agricultural land purchase	& manufacturing	Duty collection
	property	Farm mechanization	industries	Direct Tax collection
		Hi-tech agriculture	Term loans &
	Gold			State revenue
		Agricultural infrastructure and ancillary	infrastructure
	Vehicle			collection
		Krishik Pushpankura Scheme	finance
	KBL PEAK	Krishik Sarathi		PSU collections
			Business
	Education Loan	Krishik Sinchana
			development loans
	KBL Soulabhya	KBL Agri Gold Loan
		KBL Agro Processing Scheme	Corporate loans
	Plus Deposit
		Kisan Credit Card	Professional &
		Krishik Godham	self-employed
		Agriculture Infrastructure fund Scheme	loans
		Krishik Samuday	CV / CE loans
		Krishi Bhoomi
		Krishik Tractor
Services,	Simple &	Dedicated technical experts (AFOs)	GST Based Loans	GST Collection
Platforms &	smarter digital	Agri Development Branches (ADBs)	Quick digital	through Over the
Facilities	loans		underwriting	Counter and Internet
		Rural godown loans
	Centralized			Banking
		Farm machinery/ vehicle loans	Loans to women
	processing		entrepreneurs	Khajane-II e-receipts
	Immediate			for state revenue
			Segment Focused
	in-principle			collection
			Loans
	sanction			Flexi Fixed Deposits
	Dedicated			Scheme for Govt
	RLPSCs / branch			departments
	network			Karnataka Public
				Procurement Portal
				(KPPP e-BG) and RBI
				Rupee pilot

Treasury Operations

The Bank operates a fully integrated treasury, seamlessly executing strategies across domestic, foreign exchange, and derivative markets to optimize liquidity and capital efficiency under strict regulatory compliance. The main objective remains to be adherence to Cash Reserve Ratio (CRR) & Statutory Liquidity Ratio (SLR) requirements while continuing to focus on improving Banks portfolio profitability, risk insulation and synergizing banking assets with trading assets. Treasury also makes use of dynamics in the different interest rate and currency markets and gain out of arbitrage transactions while adhering to sound and acceptable business practices.

Segment-wise Performance

RAM

The Banks sustainable credit expansion strategy remains anchored around expanding the Retail, Agriculture and MSME (RAM) segment. In absolute terms, housing, agriculture, gold and vehicle loans served as the primary drivers, with ~ H3,115 crore contributed to total retail growth during Q4 FY 2025-26. Underwriting and portfolio management have been strengthened through specialised wings within the lending division focused on agriculture, forex and MSMEs. This framework ensures disciplined risk assessment, specialised product delivery and quick turnaround times.

Agricultural strategy was recalibrated away from traditional generic crop loans toward highly target-oriented, structurally de-risked value chain financing. The MSME segment remains another pillar for yield optimisation. This business focused on product innovation during the year, moving up the corporate value chain by emphasising secured transaction banking and supply-chain ecosystems.

The Bank launched its dedicated Supply Chain Financing platform, a working capital optimisation solution that enables both buyers and suppliers to manage cash flows efficiently. This financing ecosystem allows the Bank to capture high-velocity, self-liquidating working capital assets.

New Launches and Launch Pipeline

		Retail		Agriculture	MSME
	Retail loans	Liability Products	ADC Channels	Agri Schemes	MSME Products
New Products	Pre-approved	KBL Soulabhya	M/s. PINE LABS	Agri Input Loans	Supply Chain
Launched	Personal Loans	Plus Deposit	Collaboration	for Tobacco Crop	Financing
	for Salaried	Scheme \u2013	for POS Services	DGV Partnership
	Individuals	enabling flexible	(Launched in April	to scale up dairy
	PM Vidyalakshmi	withdrawals	\u2018 26)	business
	& PM Skill Loan
	Scheme \u2013 Govt
	Education loan
	Scheme
In the Pipeline	Surrogate based	Launch of	Programmable		GST OD
	lending for Housing	Virtual account	CBDC		LAP for MSME
	& Mortgage loans	facility	NFC Based QR
					Dropline OD for
		Launch of	Payments		MSME
		Capital Gain	Retail IB UI/UX
					End to end
		account	Revamp
					digitization of
		Scheme
					key
					MSME products

With a healthy pipeline, the Bank aims to compress loan turnaround times, improve credit risk mitigation and support sustainable loan book expansion across the retail ecosystem. As the Bank transitions into the next financial year, the strategic mandate centers on accelerating growth across the retail franchise.

TReDs

In line with RBI guidelines on TReDS (Trade Receivables Discounting System), which enable Banks to discount Invoices of MSME Sellers against corporates through an auction mechanism to ensure prompt realisation of trade receivables with ease, convenience and without recourse on MSME suppliers, the Bank has initiated TReDS business in the year 2020 by onboarding online platform Invoice Mart. Currently, the Bank has onboarded three platforms, viz RXIL, Invoice Mart and M1Xchange for enabling TReDS business.

During FY 2025-26, Bank has discounted 899 bills of MSME suppliers amounting to H425.00 crore. Further, the outstanding balance as on March 31, 2026 stood at H297.49 crore as against total sanctioned limit of H330.00 crore.

Corporate Banking

In the Corporate Segment, the Bank is focused on reducing its exposure to low-yielding loans. This is evident in the Inter-Bank Participation Certificate and Food Credit portfolio declining to H1,707 crore as of March 26 from H4,057 crore as of March 25.

During FY 2025-26, the Corporate Banking segment performed strongly, successfully executing its strategy to optimize asset yields and shift away from low-yielding exposures. The combined corporate portfolio grew by 16.61%, expanding from H29,728.90 crore in March 25 to H34,660.14 crore in March 26.

The expansion was anchored by a powerful 24.18% surge in the Large Corporate segment, which rose from H15,251.30 crore to H18,939.10 crore through institutional inflows and scale efficiencies. Concurrently, the Mid-Corporate segment-a core pillar of our strategic growth focus-maintained a healthy upward trajectory, growing 13% from H14,477.59 crore to H15,721.04 crore.

This performance highlights our successful transition toward onboarding higher-quality, better-yielding assets while stabilizing the overall corporate portfolio risk-adjusted yield.

Treasury Business

With various liquidity measures initiated by the RBI including OMO purchases and rate cuts, during Q1FY26 the 10-year G sec yield declined to as low as 6.17 However, subsequent quarters witnessed upward momentum. Unexpected higher gross borrowing target for FY 27 pushed the yields further higher across all tenors. Amid uncertainty over Trade deal risk aversion has increased. FIIs outflows, escalating strikes in West Asia with closure of the Strait of Hormuz and crude going beyond $ 112 per barrel has added structural risk premium to all Indian asset classes resulting a further depreciation of rupee to its lowest level @ 95.23 & 10-year benchmark @7.03.

However, stable baseline accrual earnings have successfully shielded the overall treasury portfolio. Revenue from the treasury segment including interest on Balances with RBI and inter-bank funds, Interest on Other lending, Profit from sale of Investment and exchange profit was H1,669.11 crore and H1,918.25 crore as of 31 March 2025 and 31 March 2026, respectively. It contributed H263.43 crore (previous year: H157.05 crore) to profit before tax and unallocable expenditure. The Treasury segment continued to play a pivotal role through effective liquidity management and optimisation of investment and trading returns. The improved contribution during the year reflects the segments ability to effectively navigate the evolving interest rate environment while supporting the Banks overall growth and profitability.

Cards, Payments and Merchant Ecosystems

The Banks debit card base encompasses 55.81 lakh users as of March 2026. The debit cards are issued in association with Visa and RuPay. Additionally, select cards offer additional benefits including personal accident (PA) coverage, domestic lounge access and discounts on shopping. The launch of POS services in April 2026, in collaboration with M/s. PINE LABS, further scaled the Banks alternative delivery channels and merchant acquiring footprint. Additionally, the Bank scaled up Dairy Neo Banking loans on the Unified Lending Interface (ULI), digitising the rural dairy ecosystem.

As of 31 March 2026, 95.99% of transactions were performed through digital banking channels. The Bank had approximately 7,01,709 internet banking users and 40,79,860 mobile banking users, generating over 77.39 lakh internet banking transactions and 631 lakh mobile banking transactions. In Fiscal 2026, the Bank had 56,98,743 UPI BHIM mobile payment customers generating 167.82 crore UPI BHIM transactions. Digital enablement through QR codes also gained traction with over 1,44,404 registrations.

Core Digital Touchpoints

The Bank drives virtual engagement through key proprietary platforms, including the KBL Mobile Plus application, KBL Money Click internet banking and the integrated KBL ONE omni-channel ecosystem. The Banks digital infrastructure includes a centralised data platform for streamlined regulatory and business reporting, and cloud-based AI and predictive analytics capabilities. AI is further leveraged by the sales team through integration with the CRM platform. Low code No code platform makes service delivery more agile while reducing delivery time.

Sovereign Digital Currency

The Reserve Bank of Indias (RBI) Central Bank Digital Currency transaction capabilities are supported via the dedicated Karnataka Bank Digital Rupee mobile application. Karnataka Bank Digital Rupee (CBDC) adoption recorded 28,918 users.

Insurance Services

Commission on insurance and mutual fund services earned H137 crore during FY 2025-26, compared to H120 crore in FY 2024-25.

Life Insurance

Life Insurance services are tended through an established network of institutional partners, including PNB MetLife, Life Insurance Corporation of India (LIC), Bharti AXA, Bajaj Life, and HDFC Life, to provide comprehensive life coverage. As of March 2026, commission income from life insurance business was H104.95 crore.

General Insurance

General & Health Insurance is supported by strategic alliances with Universal Sompo, Bajaj General Insurance, and ICICI Lombard to distribute a diverse suite of health and non-life products. As part of financial security initiatives, Bank launched the Group Personal Accident (GPA) insurance scheme, KBL Suraksha, offered by Universal Sompo General Insurance Co. Limited. The scheme provides accidental death cover at a nominal premium. Savings bank account holders aged 18 to 80 years can subscribe by paying H369 for H10 lakh coverage or H200 for H5 lakh coverage. The policy is renewable annually. As of March 2026, commission income from general insurance business was H26.01 crore. Automation of annual renewal of Group Accident policy helped in 83% persistency of renewal. The Banks strategy remains focused on offering need-based, customer-centric insurance solutions across various segments including retail, MSME, agricultural, commercial, and corporate customers. By aligning product offerings with customer requirements and risk protection needs, the Bank aims to strengthen customer relationships while enhancing sustainable fee income generation.

Each insurer offers a distinct bouquet of products, features, underwriting approaches, service capabilities, and pricing structures. This provides customers with multiple options and facilitates informed, need-based product selection. The arrangement creates value for all stakeholders by enhancing customer choice, supporting insurer growth, and contributing to the Banks fee-based income objectives.

Co-branded Credit Card

Bank launched a Co-branded Credit card on March 31, 2017, in collaboration with SBI Cards and is presently issuing two variants namely Simply Save Card and Prime Card. During the year, the Bank issued 11,965 co-branded credit cards, taking the total number of outstanding cards to 3,93,625. UPI RuPay Credit Card facility is also extended, that offers a wider range of credit card options to customers and enhanced convenience in digital payments.

Demat Account and Online Trading Facility

The Bank has been registered with SEBI as a Depository Participant (DP) since 2006 and has been providing demat services since then. The Bank is also offering 2-in-1 model through referral arrangements with Way2Wealth Brokers Private Limited and IIFL Capital Services Limited, by providing demat and trading services to customers.

Point of Sale

The Bank provides PoS (swiping machine) services on a referral basis to merchant partners for automated payment collections. We have partnered with Mswipe Technologies Private Limited, Paytm Payments Services Limited and Bijilipay (Skillworth Technologies Pvt Ltd) , enabling us to act as an independent referral service provider for marketing, procurement, and assistance in delivering PoS services as on 31.03.2026. We have also launched a Cash@POS facility through our network of over 9079 POS terminals at merchant establishments across India. Instant Voice Payment Confirmation by soundbox with Bluetooth Connectivity were issued to merchants . M/s. PINE LABS Collaboration for POS Services launched in April, 2026.

FASTAG facility

The Bank launched KBL FASTag on 25 August 2021. The recharge function is enabled through mobile banking , UPI and the NETC FASTag portal.

Jan Suraksha Schemes

To provide social security to underserved and vulnerable sections of India, the Government has launched the Pradhan Mantri Suraksha Bima Yojana (PMSBY), Pradhan Mantri Jeevan Jyoti Yojana (PMJJBY) and the Atal Pension Yojana (APY). As of March 31, 2026 the Bank achieved cumulative enrollment of 5,16,553 under PMJJBY, 10,82,354 under PMSBY, and 2,18,083 under APY.

Other Banking Operations

Digital Marketing Initiatives

To align service delivery with customer expectations, the Bank leverages its Analytical Centre of Excellence (ACoE) to deploy advanced business intelligence tools for targeted digital marketing campaigns. This data-driven marketing framework is undergirded by 12 self-service, agile drill-down dashboards that successfully empower internal teams with robust, real-time decision-making capabilities.

Trade Finance Automation

Forex transactions are streamlined through the Trade Zone module. ADC services include an outward remittance module (LRS) available via internet banking.

Doorstep Gold Loan

The KBL Swarna Bandu product offers doorstep gold loan services, in collaboration with Sahibandu FinTech Services Private Limited.

Corporate Salary Account

The Banks value-added services for corporate salary savings accounts include concessions on locker rent, airport lounge facilities, debit cards with higher limits and various insurance benefits.

WhatsApp Banking

The Banks digital banking services extend to WhatsApp, offering 24/7 modern, secure and convenient banking access.

Human Resource

As on March 31, 2026, the Bank had 9,047 employees, including 2,950 women employees constituting around 32.60% of the total strength. Recruitment initiatives are conducted through campus placements and specialised agencies, with focus on promoting inclusivity.

The Bank undertakes regular training and development initiatives including e-learning modules and training/workshop/seminar in its Staff Training College and other external training institutions.

The Bank has set up an institutional mechanism for the protection of women employees at the workplace and adopted a policy pursuant to Section 22 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, providing for the protection of women employees against the sexual harassment of women at the workplace and redressal of such complaints.

Training & Development

Training plays a major role in Human Resource Development. Effective training is important for any organization that aims to gain a competitive advantage through enhanced performance and excellent service from its employees. It is essential that staff members are acquainted with the required knowledge and skills to meet current challenges so as to perform the tasks efficiently and prepare them to shoulder higher responsibilities.

The Bank has hosted a total of 170 e-learning modules on the ELM platform so far, of which 14 modules were launched during FY 2025-26. The modules hosted have covered all facets of Banking and also important products/processes of the Bank, Parabanking, IT, Information and Cyber Security, Risk and so on. E-learning provides the members of staff a very good opportunity to acquire knowledge on diversified subjects at their location through easy learning techniques without the necessity of attending classroom training. These modules are in simple & lucid language and understandable to everyone and on successful completion, an e-Certificate is also awarded.

The Bank deputes its employees to various training and development programmes to upgrade their skills, competencies and contribution towards the growth of the Bank. The Bank has a well-established Staff Training College at Banks Centenary

Building, which is awarded the prestigious ISO 9001:2015 certification for the Compliance Quality Management Standards. Few of the elite institutes where the Bank deputes its officers and staff for specialized training Centre for Advanced Financial Research & Learning (CAFRAL) Mumbai, National Institute of The Bank Management (NIBM) Pune, Southern India Banks Staff Training College (SIBSTC) Bengaluru, Indian Institute of Banking and Finance (IIBF) Mumbai, College of Agricultural Banking (CAB) Pune, Institute for Development and Research in Banking Technology (IDRBT) Hyderabad, Foreign Exchange Dealers Association of India (FEDAI) at Mumbai and Bankers Institute of Rural Development (BIRD) Mangaluru & Lucknow.

As on 31.03.2026, 5374 staff members have undergone training/workshop/seminar in our Staff Training College and other external Training Institutions as against 5772 for the corresponding previous year.

As a part of the Capacity Building initiative, specialized areas like Treasury Operations, Risk Management, Credit Management, Accounting, Human Resource Management, and Information Technology have been identified and the staff members are encouraged to acquire certification courses from institutions approved by IBA.

The Bank values opinions and suggestions from all the employees and encourages their inputs, thoughts and innovative ideas which help in creating a highly productive, competitive, and reliable workforce thereby emerging as a preferred destination for the competent workforce. Further, the Bank has maintained cordial industrial relations and effective employee discipline.

Financial Performance

As on March 31, 2026, the Business Turnover of the Bank reached a new high of H1,92,118.67 crore with a YoY growth of 5.12% as against H1,82,766.21 crore as on 31 st March 2025. The Bank registered a net profit of H1,310.50 crore for FY 2026 and H1,272.37 crore for FY 2025 with a YoY growth of 3%.

Gross Advance stood at H83,339.92 crore as on 31 st March 2026, reflecting a YOY growth of 6.90% over March 2025 from H77,958.72 crore. Our overall strategy is to continue growing Retail, Agri & Mid Market (RAM), where the growth was led by Gold, Vehicle and Housing loan portfolio. The Bank has implemented various cost rationalization and monitoring measures to keep expenses under control. Concurrently, our focus is on low-cost deposits to reduce the cost of funds, along with an emphasis on RAM and high-yield portfolios to enhance loan yields, improving Net Interest Income and supporting sustained control over the Cost-to-Income ratio.

Deposits

The Banks aggregate deposits reached H1,08,778.75 crore as of March 31, 2026, registering a ~3.79% year-on-year (Y-o-Y) growth. Term deposits reached H72,219 crore in FY 2025-26, driven by targeted expansion of retail term deposits. The retail term deposit portfolio expanded by ~5% year-on-year (Y-o-Y), closing the fiscal year at H67,648 crore. Bulk deposits formed the remaining H4,568 crore (excluding inter-bank term deposits).

Parallelly, CASA deposits exhibited strong momentum, growing by ~9.85% Y-o-Y to H36,559.66 crore. The CASA ratio improved by 186 bps during the year to reach 33.61%. CASA accretion remains a key priority, and we have implemented targeted strategies to further accelerate its growth during the year. The Bank has executed a strategy to optimise funding costs by reducing reliance on high-cost bulk deposits in favor of granular retail deposits (defined as deposits under H3 crore). Consequently, bulk deposits as a percentage of term deposits declined from 9.7% in March 2025 to 6.3% by March 2026. Further, the Bank ensured that most deposit renewals were strictly executed at predefined card rates to maintain tight control over the cost of funds.

Dormant Account Activation:

The Dormant Account Reactivation Campaign has successfully re-engaged customers and revitalized banking relationships by reconnecting with inactive account holders. This initiative has contributed to restoring dormant accounts to active status, improving operational efficiency, strengthening regulatory compliance, and creating new business opportunities. Through proactive customer outreach, awareness programs and a simplified reactivation process, the campaign has effectively converted inactive accounts into active and productive banking relationships, enhancing both customer engagement and business growth. The Bank is utilising its contact center for reaching out to customers. Dormant Account Reactivation through online (V-CIP) mode has removed the need for physical branch visits, by ensuring a fully paperless experience.

Nomination Awareness

To reach out to customers who have not availed nomination facility, the Bank has taken the following steps: Launched the Namaankan Suvidha - 2026 campaign across the Bank.

Conducted customer awareness initiatives through SMS, email communications, and Contact Centre follow-ups. Undertaken system enhancements to support multiple and successive nomination facilities up to 4 nomination Displayed awareness banners at prominent locations in branches Published awareness creatives on social media platforms.

Creating awareness amongst rural mass through the Banks branches and financial literacy centres.

Geographically, the Banks deposit base remains predominantly domestic. The Bank holds only a small, non-sizable portfolio of NRI/ FCNR deposits from the Middle East, limiting exposure to geopolitical volatility in that region. The CD ratio stood at 76.61% in March 2026, compared to 74.38% in March 2025, highlighting the measured deployment of deposit growth into advances.

Interest Earned

Particulars	FY26	FY25	Change (%)
Interest on advances and Discount on bills	6,681.05	7,009.38	(4.68)
Income on investments	1,642.76	1,466.22	12.04
Interest on balances with RBI and inter-bank Funds	46.50	41.37	12.40
Other interest income	547.52	496.63	10.25
Interest earned	8,917.83	9,013.60	(1.06)

The decrease in Interest on advances and Discount on bills was by 4.68% reflecting the impact of changes in the interest rate environment and pressure of lending yields. However, the decline was partially offset by healthy growth in income from Investments, interest on balances with RBI and other Income demonstrating effective treasury management.

Other Income

( K in crore)

Particulars	FY26	FY25	Change (%)
Other Income	1,402.89	1,269.52	10.51

Other income increased to H1402.89 crore from H1269.52 crore, i.e., by 10.51% primarily driven by improved recovery from other non-interest income streams.

Interest Expense

( K in crore)

Particulars	FY26	FY25	Change (%)
Interest on deposits	5,662.54	5,536.41	2.28
Interest on borrowings from RBI and Banks	4.81	7.61
Other interest	131.75	159.19
Interest expended	5,799.10	5,703.22	1.68

Operating Expenses

Particulars	FY26	FY25	Change (%)
Employee cost	1,297.80	1,538.40	(15.64)
Depreciation	106.47	85.06	25.17
Other administrative expenses	1,143.18	1,129.40	1.22
Total operating expenses (A)	2,547.45	2,752.86	(7.46)
Total income (Less) Interest Expenditure (B)	4,521.62	4,579.90	(1.27)
Cost to Income Ratio (%) (C = A/B)	56.34	60.11	377 bps

For the year ended March 31, 2026, the cost-to-income Ratio stood at 56.34%. The decline was primarily driven by reduction in employee costs. The Bank continues focus on cost optimisation and operational efficiency. The decline in employee cost during the current financial year was primarily due to increase in the G-Sec yield considered by the Actuary in the valuation of employee retirement benefit obligations.

Provisions and contingencies

Particulars	FY26	FY25	Change (%)
NPA	309.61	282.32	9.67
Standard advances (including NPV of Restructured Standard	10.08	(105.93)	(109.52)
advances)
Others	(3.62)	10.05	(136.02)
Provision for Tax	347.60	368.23	(5.60)
Total provisions	663.67	554.67	19.65

During FY26, The Bank has resorted to accelerated provisioning for non-performing advances, thereby having PCR of 83.54% and moderating Net NPAs to below 1% levels. The Bank continues to maintain adequate provisioning to strengthen the balance sheet and enhance resilience against risks.

Deposits

( K in crore)

Particulars	FY26	FY25	Change (%)
CASA deposits	36,559.66	33,281.00	9.85
Term deposits	72,219.09	71,526.49	0.97
Others		-
Total	1,08,778.75	1,04,807.49	3.79

There was higher growth of ~9.85% in CASA deposits YOY, which led to decrease in the cost of deposits from 5.62% in FY25 to 5.52% in FY26, thus improving NIM levels.

Advances

During FY 2025-26, advances grew by 6.90%. The details are as under:

( K in crore)

Particulars	FY26	FY25	Change (%)
Advances	83,339.92	77,958.72	6.90%

Asset quality / Provisioning

Asset quality refers to the recoverability of an advance, measured by the behaviour of the borrower in timely payment of interest and instalments and other parameters. As per RBI guidelines, we have classified our advances into Standard, Substandard, Doubtful and Loss assets depending upon how long a loan has remained a non-performing asset (NPA) and made provisions as per those guidelines. Asset quality remained resilient. Credit cost stayed stable at 0.38% in FY26 compared to 0.37% in FY25, while the slippage ratio improved to 1.50% in FY26 from 1.71 % in FY26. This reflects out continued focus on disciplined monitoring and high-quality underwriting.

( K in crore)

Gross NPA	Amount	Provision held
Sub-standard	647.11	128.69
Doubtful	1,176.11	900.73
Loss	497.71	418.15
Total NPA	2,320.93	1447.57
Other Netting Items		70.14
GNPA%	2.78
Net NPA	803.22
NNPA%	0.98

Capital Adequacy

Bank maintained a strong capital position and capital adequacy ratios were well above the minimum regulatory requirements of 11.50% as per Basel III capital adequacy guidelines stipulated by RBI.Capital-To-Risk Weighted Assets Ratio (CRAR) under Basel III:

( K in crore)

Particulars		As on 31.03.2026	As on 31.03.2025
A.	Tier I Capital
	Paid-up Equity Capital	378.19	377.95
	Reserves under Tier I Cap.	12,076.75	10,915.88
	Total Tier I Capital	12,454.94	11,293.83
B.	Tier II Capital
	General Provisions & Reserves	628.08	625.13
	Subordinated Debts	300.00	300.00
	Eligible Tier II Capital	928.08	925.13
C.	Total Capital Tier I and II (A+B)	13,383.02	12,218.96
D.	Risk-Weighted Assets	66,684.95	61,542.51
E.	CRAR Tier I Capital (A/D)	18.68%	18.35%
F.	CRAR Tier II Capital (B/D)	1.39%	1.50%
G.	CRAR Tier I and Tier II Capital (C/D)	20.07%	19.85%

Key Ratios

		As on/FYE	As on/FYE
Ratio	UoM
		31.03.2026	31.03.2025
Productivity ratio
Operating Profit per employee	H in crore	0.22	0.21
Operating Profit per branch	H in crore	2.02	1.92
Business per employee	H in crore	21.24	20.89
Business per branch	H in crore	197.04	191.98
Profitability
Net interest margin	%	2.88	3.19
Interest spread	%	3.42	3.85
Cost to income	%	56.34	60.11
Operating Margin	%	19.13	17.77
Net profit Margin	%	12.70	12.37
Cost of funds	%	5.55	5.67
Cost of deposits	%	5.52	5.62
Yield on Advances	%	8.94	9.47
Solvency Ratio
Debt equity Ratio	in times	0.02	0.07
Asset quality
Gross NPA	%	2.78	3.08
Net NPA	%	0.98	1.31
Capital efficiency
Business turnover	H in crore	1,92,118.67	1,82,766.21
Credit deposit ratio	%	76.61	74.38
Return on assets	%	1.05	1.05
Return on equity	%	10.36	11.10
Provision coverage ratio (PCR) [Including TWO]	%	83.54	81.42
Provision coverage ratio (PCR)[excluding TWO]	%	65.39	58.18
Capital-To-Risk Weighted Assets Ratio (CRAR)	%	20.07	19.85
Shareholder value
Earnings per share	H	34.66	33.69
Book value per share	H	349.69	319.77

Net Interest Margin stood at 3.07% for Q4 FY26 vs. 2.98% in Q4 FY25. Improvement in Net Interest Margins (NIMs) was driven by the Banks focused initiatives in the RAM segment, with an emphasis on enhancing yields, alongside a calibrated improvement in CASA and Retail Term Deposits (RTD) aimed at optimizing the cost of funds.

PCR: In line with the Banks commitment to strengthening PCR, accelerated provisioning continued. PCR (excluding TWO) increased to 65.39% in FY26 from 58.18% in FY25, while PCR (including TWO) rose to 83.54% as of FY26 from 81.42% as of FY25.

Path Ahead

For FY 2026-27, the Bank has outlined several strategic initiatives to strengthen growth, digital capabilities, and customer experience: 1) Agriculture Lending: Extending short-term agri input loans to registered tobacco growers with digital onboarding and faster sanctioning under a tobacco board tie-up. Continued focus on rural and semi-urban centers for agriculture.

2) Digital Gold Loan Expansion: Expand gold loan portfolio through digital sanctioning to reduce turnaround time and costs. The initiative is aimed at enhancing yield on advance, driving operating efficiencies to improve Cost-to-Income ratio, and accretion to NIM.

3) Programmable CBDC: Enabling funds to be used only for predefined purposes within a specified time or through designated beneficiaries to ensure better control and targeted disbursement.

4) Enhanced Payment Infrastructure: Rolling out NFC-based QR payments and Tap & Pay facilities to provide seamless and secure payment options across channels.

5) Surrogate & MSME Lending Products: Expanding surrogate-based lending for housing and mortgage loans. Introducing Dropline OD and LAP products for MSMEs to improve credit access.

6) Core Systems & Technology Revamp: Implementation of Loan Origination System revamp with collateral management, DevSecOps, HRMS revamp, Treasury revamp, and BHIM 3.0 to drive efficiency.

7) AI & Analytics Led Growth: Leveraging AI tools for internal process improvements and deploying analytics-based lead generation and sales initiatives in partnership with fintechs.

8) Geographical & Branch Productivity: Balanced expansion across rural, urban, and non-southern regions. Establishing regional processing hubs to improve per-branch productivity and decision turnaround times.

Expected Outcomes

These strategic initiatives are designed to translate into steady improvements in margins, profitability, and key return ratios over the coming quarters. By strengthening digital infrastructure, focused product offerings, and distribution reach, the Bank aims to enhance asset quality, rationalize funding costs, and maintain its competitive edge while deepening financial inclusion.

Risk Management

Type of Risk																				Mitigation Framework				Strategy
Geopolitical Risk																				The Bank mitigates geopolitical risks through				The Banks						exposure			to
Prolonged						conflicts,							escalation							diversification, enhanced credit appraisal and				geopolitical						volatility	in		the
of tariffs and geo-fragmentation																				monitoring and macroeconomic surveillance.				Middle East is limited,							reducing
can impact						investor							sentiment											direct exposure to						volatility in
impacting Bank\u2019s advances.																								the region. With robust capital
																								adequacy,			comfortable liquidity
																								and a			disciplined			execution
																								framework, the Bank\u2019s overall
																								outlook			remains			cautiously
																								positive.
Credit Risk																				To quantify and aggregate credit risk across				Ensuring			healthy asset quality
Credit risk is the possibility of a																				various exposures, the Bank has developed an				by continuous monitoring &
bank\u2019s borrower or counterparty																				advanced, online comprehensive credit risk rating				collection			follow-ups				through
failing to meet their obligations in																				system. This framework incorporates corporate				a separate						department,			viz.
accordance with agreed terms.																				rating models, specialised lending rating models,				Credit Monitoring Department
																				the Retail Score Card model and the Facility Rating				(CrMD).
										Model. Further, the Bank has automated its retail
										underwriting and credit decisioning processes by
										leveraging a robust Business Rule Engine (BRE).
										Large credit risk exposure is mitigated through
										structured credit audits, legal audits, and stock
										audits.The implementation of Expected Credit
										Loss Framework by the RBI will further reinforce
										credit risk management practices, at par with
										globally recognized standards.
Type of Risk																		Mitigation Framework					Strategy
Market Risk																		The Bank has implemented Board-approved					Optimising			returns								from
Market risk								is			the risk						to	Policy on Integrated Treasury, Policy on Asset					various			assets			&			market-
earnings & capital resulting from																		Liability Management (ALM), the Policy on Market					linked instruments,									treasury
movements								in			market					prices,		Risk Management and Policy on Fund Transfer					operations, etc.
particularly changes in interest																		Pricing for effective management of Market Risk in
rates, foreign											exchange					rates		the Bank. Additionally, inbuilt thresholds facilitate
& equity &								commodity								prices,		close monitoring of the market movement.
including the volatilities resulting
from those changes
Liquidity Risk																		The Bank conducts gap analysis for maturity					Advanced			assessment						of		the
Liquidity risk								arises when The										mismatch based on residual maturity in different					need for funds and coordinating
Bank fails to meet its contractual																		time buckets to assess liquidity risk. Advanced					with various sources									of funds
obligations in its daily operations																		techniques such as Stress testing, simulation,					available			to the Bank						under
due to an inadequate funds flow																		sensitivity analysis, etc., are conducted at regular					normal and stressed conditions.
																		intervals to monitor the liquidity and to draw the
																		action plan if required.
Interest Rate Risk																		Interest rate risk is evaluated through two distinct					Ensuring			an			appropriate
This is a Risk that arises																when		lenses of the Earnings Perspective and the					trade-off			between the						cost of
the financial								value of assets									or	Economic Value Perspective. The earnings impact					deposits			and the interest								rate
liabilities (or inflows /outflows) is																		is quantified via Earnings-at-Risk (EaR) utilising					on advances.
altered because of fluctuations in																		Traditional Gap Analysis (TGA), whereas the
interest rates.																		economic value impact is assessed by measuring
																		changes in the Economic Value of Equity (EVE)
																		through Duration Gap Analysis (DGA).
																		The mitigation process involves applying various
																		shocks to product-wise weighted average interest
																		rates across designated time bands. A strong CD
																		ratio of 76.61% in March 2026 highlights strong
																		pricing power of the Bank against this risk.
Cyber Risk																		To address cyber risks and protect information					Strengthening						the			Bank\u2019s
This is a Risk											associated					with		systems, the Bank has aligned its operations with					internal cyber resilience system
financial/data loss, disruption, or																		RBI guidelines by deploying a robust security					while keeping a						watch			on		the
damage to the											reputation					of	an	architecture. This includes advanced endpoint					cyber risk associated									incidents
organization from unauthorized/																		security, application firewalls, web security					in the outside world.
deliberate malafide or erroneous																		gateways, Privilege Identity Management (PIM),					Bankregularlyenhancesemployee
use of information systems.																		and automated log monitoring via an in-house					capability,			preparedness								and
																		Security Operations Center (SOC) powered by					security			awareness						through
																		SIEM tools. The Bank is certified under ISO/IEC					comprehensive									learning
																		27001:2022 standards for its Information Security					modules,			phishing simulation
																		Management System (ISMS) across core data					campaigns,			cyber						security
																		facilities and PCI-DSS version 4.0.1 for its card					awareness			programmes								and
																		data environment. Cyber defences are reinforced					periodic sensitization initiatives
																		through dark web and attack surface monitoring,					conducted			across all						levels
																		threat intelligence feeds from national agencies,					of staff.
																		breach assessment services, cyber insurance and
																		a resilient cloud strategy.
Type of Risk															Mitigation Framework							Strategy
Operational Risk																			The Bank has in place a comprehensive		The Banks operational
															Operational Risk Management Framework							risk strategy is focused
Operational risk is the risk of loss
															(ORMF) to identify, assess, monitor and mitigate							on enhancing operational
resulting			from		inadequate							or
															operational risks across the organization. The							resilience through continual
failed internal processes, people
															framework is supported by Board-approved							improvement of processes,
and	systems, or				from				external
															policies, a robust governance structure, clearly							controls and technology. New
events.	It includes						risks		arising
															defined roles and responsibilities, and strong							products and process changes
from	process						breakdowns,
															internal controls. Key components include Risk							are implemented following
human			error,		fraud,				cyber
															and Control Self-Assessments (RCSAs), Key							appropriate risk assessments,
threats, technology failures, legal
															Risk Indicators (KRIs), operational loss event							primarily through the Risk and
and	compliance				issues,				third-
															monitoring, internal audits, compliance reviews							Control Self-Assessment (RCSA)
party dependencies and business
															and periodic risk assessments. The Bank also							process, to identify, evaluate
disruptions.
															maintains business continuity and disaster							and mitigate key operational
																									recovery plans to ensure operational resilience			risks. The Bank fosters a strong
																									and the uninterrupted continuation of critical			risk-aware culture through
																									business functions during disruptions.			regular training, awareness
																												initiatives and accountability
																												across all levels. Continuous
																												monitoring of emerging risks,
																												adoption of technology-enabled
																												controls and timely remediation
																												of control gaps support the
																												Banks objective of minimizing
																												operational losses while
																												enabling sustainable growth
																												and safeguarding stakeholder
																												interests.
Fraud Risk															The Bank has in place a Fraud Risk Management							The Banks fraud risk strategy
															Framework (FRMF) to identify, prevent, detect,							focuses on strengthening
Fraud risk is the risk							of		financial						monitor and respond to fraud risks across its							prevention and detection
loss,	regulatory						sanctions,								operations. The framework is supported by Board-							capabilities through enhanced
reputational					damage							or			approved policies, a well-defined governance							controls, analytics-driven
business			disruption				arising from								structure, clear accountability and robust							monitoring and technology-
intentional			acts		of		deception,								preventive and detective controls. Key elements							enabled solutions. Fraud risk
misappropriation,									forgery,						include fraud risk assessments, transaction							assessments are undertaken
unauthorized							transactions,								monitoring, fraud surveillance, whistle-blower							for new products, channels
cyber-enabled					fraud,				internal						mechanisms, investigation protocols, employee							and process changes to identify
misconduct					or				external						due diligence, and periodic audits and reviews.							and mitigate vulnerabilities.
fraudulent activities.							Fraud					risk										Through continuous monitoring
may	originate from						customers,								The Bank has strengthened fraud risk							of emerging fraud trends,
employees,			third				parties					or			management through integrated systems and							customer and employee
organized fraud networks.															controls embedded within its Core Banking							awareness initiatives, and timely
															Solution (CBS). Its Enterprise-Level Fraud							remediation of control gaps,
																									Risk Management System (ELFRMS) monitors			the Bank seeks to minimize
																									transactions across CBS and Alternate Delivery			fraud losses, protect customer
																									Channels (ADC) on a real-time basis, using			interests and preserve
																									predefined fraud scenarios to identify and flag			stakeholder confidence.
																									potential suspicious activities. The Bank also
																									has established processes for timely reporting,
																									escalation and resolution of fraud incidents in
															compliance with regulatory requirements.

Asset Quality and Credit Risk

The Banks disciplined credit appraisal framework, continuous portfolio monitoring and focused recovery initiatives have supported a steady improvement in asset quality during FY 2025-26. Gross NPAs reduced to H2,320.93 crore as at March 31, 2026, from H2,402.08 crore in the previous year, with the Gross NPA ratio improving to 2.78% from 3.08%. Net NPA as on March 31, 2026 was H803.22 crore as against H1,004.55 crore as on March 31, 2025.The improvement was supported by effective control over fresh slippages, robust recoveries through institutional resolution mechanisms and focused legal recovery actions, reinforcing the overall health and resilience of the Banks credit portfolio.

Internal Control Systems and their adequacy

The Bank has put in place an effective and robust internal control apparatus, commensurate with its size, geographical spread and complexity of operations. At the apex level, guidance and direction on the control aspects are vested with the Audit Committee of the Board of Directors, which takes an overall view of the internal control aspects and formulates all the related policy guidelines.

The Bank has put in place an independent Compliance Department headed by a Chief Compliance Officer who is in charge of the entire compliance functions of the Bank to ensure effective implementation and compliance with all the directives issued by various Regulators, its Board of Directors and its own Internal Control Policy.

Risk-Based Internal Audit (RBIA)

The Bank has adopted a Risk-Based Internal Audit (RBIA) mechanism, which ensures greater emphasis on the internal auditors role in mitigating various risks. While continuing with the traditional risk management and control methods involving transaction testing, etc., the Risk-Based Internal Audit would not only offer suggestions for mitigating current risk but also for potential risk, thereby playing an important role in the risk management process of the Bank. The risk assessment under RBIA covers risks at various levels (corporate and branch, portfolio and individual transactions, etc.) as well as the processes in place to identify, measure, monitor and control the risks. The internal audit department has put in place the RBIA risk assessment methodology, with the approval of the Audit Committee of the Board of Directors, keeping in view the size and complexity of the business undertaken by the Bank. The risk assessment process includes the identification of Inherent Business Risk in various activities undertaken by the Bank and evaluating the effectiveness of the control systems for monitoring the Inherent Risks of the business activities. The Internal Audit function and control risk of the Bank operates independently under the supervision of the Audit Committee of the Board, thereby ensuring its independence. To appraise the effectiveness of management at different levels in accomplishing the assigned tasks towards achieving the overall corporate objectives, a Management Audit is being undertaken by Bank for Departments at the Head Office and Regional Offices.

Concurrent Audit, Credit & Stock Audit

The Bank further covers select branches under concurrent audit as per the Concurrent Audit Policy of the Bank. Concurrent Audit of Integrated Treasury functions (both domestic and forex), Forex designated branches, Centralised Loan Sanctioning Centre, Centralized Account Verification Cell, SWIFT reconciliation, Retail Loan Processing Centres, Centralised Reconciliation Cell and all critical processes are also undertaken.

Besides, the Bank has also been causing Stock/Credit Audits and Legal Audits of large borrowal accounts by external professionals in furtherance of effective credit administration. Banks Credit Monitoring Department and Risk Management Department are acting as risk-resilient systems for effectively monitoring and managing for mitigation of various risks.

Testing of Internal Financial Controls over Financial Reporting (ICFR)

As per the requirement of the Companies Act, 2013, the Bank has formulated an Internal Financial Controls framework by documenting risks and controls associated with each process in the Bank and testing of Internal Financial Controls over Financial Reporting (ICFR) is done annually.

Information Systems Audit

With a view to seeking periodic assurances on the adequacy and efficacy of internal control functions, the Bank conducts periodic Regular Inspections and Information System (IS) audits of all the branches and Offices. An IS Audit of Data Centre and DR Site is done by CERT-In empanelled external security auditing firm, besides conducting other regular IS Audits by internal CISA-qualified and ISO 27001 Lead Auditors, etc. The Bank has implemented a Defence in Depth security architecture with continuous monitoring by the Securities Operations Centre (SOC) integrated with SIEM to safeguard the interests of the banks assets and its stakeholders. The systems and processes of the Data Centre, NLS & IT, and RMD departments of the Bank are ISO 27001:2022 certified. The Bank has put in place the policies and procedures for ensuring orderly and efficient conduct of its business, safeguarding of its assets, prevention and detection of fraud and errors, accuracy and completeness of the accounting records and timely preparation of reliable and transparent financial information. The Audit Committee of the Board periodically assesses the effectiveness of the internal financial controls and their adequacy and issues directions for their strengthening wherever found necessary.

Cautionary Statement

This report may include forward-looking statements about The Karnataka Bank Limited. Please note that these statements do not guarantee future results, and actual outcomes may differ significantly. The Bank uses words like may, will, seek, continue, aim, anticipate, target, projected, expect, estimate, intend, plan, goal, believe, and achieve to indicate forward-looking statements. These statements involve risks and uncertainties because they relate to future events and conditions. The forward-looking statements are accurate as of the publication date. They may be affected by changes in laws, reporting standards, and environmental, social, or geopolitical risks beyond our control. Actual results may vary from what we expect. More details on the factors that may affect Karnataka Banks future performance are available in the Banks FY 2025-26 Integrated Annual Report available at (www.karnatakabank.bank.in) While the Bank is committed to following all relevant laws and regulations, it does not promise to update these forward-looking statements publicly, even if new information or events arise.