Karnataka Bank Ltd Management Discussions

Global Economic Overview

The global economy in 2024 expanded moderately despite persistent challenges. Per the IMFs July 2025 World Economic Outlook, global growth was around 3.4% in 2024, with forecasts now at 3.0% for 2025 and 3.1% for 2026, marking a slight upgrade over prior expectations, helped by tariff reductions, a softer US dollar, and targeted fiscal measures. Manufacturing stayed weak across Europe and parts of Asia, restrained by supply chain issues and soft demand, whereas services sectors showed strength, sustaining overall growth. Inflationary pressures eased, with headline inflation expected to decline to roughly 4.2% in 2025, although core inflation remains elevated in certain countries, especially the US. Central banks held tight monetary policies during most of the year, which tightened financial conditions; however, inflation slowdowns toward the end of 2024 led some to signal a shift toward easing. Despite these improvements, risks from ongoing tariffs, geopolitical tensions, and financial market volatility remain elevated. Multilateral organizations emphasize coordinated policies to preserve trade stability and promote sustained growth.

Indian Economy and Fiscal Position

Indias economy remained a bright spot amid global challenges, sustaining robust growth. As per the Economic Survey 202425, real GDP growth for FY2024-25 is estimated at 6.5%, nearly matching the countrys decadal average. This performance was driven by a rebound in domestic demand—especially rural consumption—and strong services sector growth above 7%. Agriculture recovered from last years slowdown, and industry expanded modestly.

Macroeconomic stability was maintained with retail inflation moderating to 5.4% in FY2023-24, down from 6.7% the previous year. Inflation stayed mostly within the RBIs target band, supported by prudent monetary policy and easing food prices in the latter half of the year. The external position improved, with the current account deficit at around 1% of GDP during April-December 2024, backed by resilient service exports and moderation in import growth.

The Union Budget 2024-25 targeted a fiscal deficit of 4.9% of GDP, down from a provisional 5.6% in FY2023-24, achieved through better revenue mobilization and controlled spending. Fiscal policy balanced supporting recovery—via sustained public capex, especially in infrastructure—with reducing deficits. The Government aims to bring the fiscal deficit below 4.5% by FY2025-26. Overall, Indias fiscal health remains stable, with manageable debt and increased space for capital spending, boosting confidence in continued growth.

Financial Markets Review

Indian financial markets experienced a year of mixed trends in FY2024-25, with equity markets reaching new highs before volatility set in, and bond markets rallying on hopes of monetary easing. The benchmark Nifty 50 surged by about 17.7% during April-September 2024, reaching record levels driven by strong corporate earnings, robust domestic inflows, and positive growth sentiment. However, the second half of the year saw caution as high valuations and global uncertainties triggered foreign portfolio outflows, with the Nifty 50 falling by roughly 10.5% from October 2024 to February 2025 before stabilizing. The index ended FY25 with a modest annual gain of approximately 5.3%, outperforming many global markets. Primary market activity remained significant in the first half of 2025, with Indias IPO market raising around $4.6 billion across 108 deals, accounting for nearly 8% of global IPO proceeds during RS.1 2025.

In fixed income, yields moved downward, especially in the latter part of the year. The Reserve Bank of India maintained the repo rate at 6.50% through most of 2024 before cutting it by 50 basis points in early 2025 (two cuts of 25 bps each) to 6.0%, responding to easing inflation. These moves, alongside ample liquidity, resulted in a decline of the benchmark 10-year government bond yield from about 7.0% to 6.5% by MarcRs. 2025. The Indian rupee remained mostly range-bound in the mid-80s against the US dollar, dipping to an all-time low of around H87.9 in February 2025, before recovering due to strong external buffers and regulatory interventions. Commodity prices, including international crude, moderated during the year, providing some relief amid ongoing volatility. Overall, FY25 saw resilient financial markets, with equity gains, bond rallies, and regulatory vigilance from RBI and SEBI to ensure market stability.

Indian Banking Sector Performance

The Indian banking sector demonstrated strong resilience and growth in FY2024-25, consolidating gains from prior years of structural strengthening. Scheduled Commercial Banks (SCBs) total non-food credit rose by approximately 12% year-on- year as of MarcRs. 2025, supported predominantly by robust demand from retail and MSME segments. Credit growth to large corporates remained moderate during FY25, reflecting cautious borrowing amid an evolving macroeconomic environment and an increased preference for bond market financing and alternative debt instruments among larger firms. Retail loans—including housing, vehicle, and personal loans—and MSME lending grew strongly by about 13% year-on-year in FY25, reinforcing its role as a major driver of bank credit, supported by priority sector lending, better asset quality, and rising digital adoption.

On the liability side, deposits maintained steady double-digit growth, increasing by approximately 10.6% year-on-year by

MarcRs. 2025, which combined with credit growth to nudge the credit-to-deposit (C/D) ratio upward to around 80.2%. The Reserve Bank of India actively managed liquidity conditions through open market operations and adjustments to the Cash Reserve Ratio to maintain systemic balance.

Asset quality improved to a multi-decade best, with the gross nonperforming assets (GNPA) ratio declining to 2.3% as of MarcRs. 2025, down from 2.8% a year earlier. Net NPAs similarly decreased to approximately 0.5%, reflecting sound provisioning and effective credit risk management. Fresh asset slippages remained contained, marking a significant turnaround from previous high NPA levels.

Profitability of the banking system remained robust in FY25, driven primarily by public sector banks (PSBs) which reported a strong 26% year-on-year increase in profit after tax (PAT). This impressive profitability was supported by improved asset quality, stable net interest margins, and lower credit costs. While aggregate PAT growth of all Scheduled Capital adequacy in the Indian banking system remained robust as of MarcRs. 2025.

The aggregate Capital to Risk-Weighted Assets Ratio (CRAR) for Scheduled Commercial Banks (SCBs) stood at a record high of around 17.3%, reflecting strong capital buffers across the banking sector. Regulatory oversight continued to evolve with enhanced provisioning norms and prudential lending guidelines, further strengthening sector stability. Meanwhile, financial inclusion expanded with growing banking access points and increased digital penetration, fostering broader economic participation.

In summary, FY25 was a year of consolidation and sustainable strength for Indias banking sector. Steady credit growth, improving asset quality, resilient profitability, and solid capital and liquidity positions collectively positioned banks to effectively support the countrys expanding credit needs, while adapting to emerging economic challenges.

Segment-Wise Performance

Having completed 101 years of operations, Karnataka Bank serves 13.7 million customers as of MarcRs. 2025. Operating under the motto "Banking with a legacy, embracing the future" the bank was incorporated on February 18, 1924, in Mangaluru, Karnataka, and is a professionally managed scheduled commercial bank.

Its banking segments include Corporate/Wholesale Banking, Retail Banking, Treasury, and Other Banking Operations, each of which contributed to the overall results for the year.

Corporate Banking

The Banks Corporate and Wholesale Banking business comprises tailored services designed to meet the needs of large corporates, public enterprises, and private firms across diverse industries. This segment offers a wide range of fund and nonfund-based products, including term loans, working capital facilities, foreign exchange services, structured finance, and

trade finance solutions such as letters of credit, guarantees, and bill discounting.

During the year, this segment generated revenue of INR 3,516.44 Crore (Previous year: INR 3,450.37 Crore) and contributed INR 615.44 Crore (Previous year: INR 977.96 Crore) to profit before tax (before unallocable expenditure). While the numbers reflect a moderated performance compared to the previous year, they also highlight the Banks deliberate recalibration strategy aimed at long-term resilience. The Bank consciously rebalanced its portfolio towards better-rated clients and selected industry exposures—an approach expected to yield stronger, more sustainable outcomes in the coming years. This segment continues to underscore the relevance of our clientcentric, solution-driven approach, even as we navigate a more measured growth trajectory.

Retail Banking

The Bank offers a wide range of personal banking products that cater to the diverse needs of retail customers. Within the Retail segment, the Banks offerings include home loans, automobile loans, personal loans, education loans, loans against term deposits, loans against securities, gold loans, small business loans, and agriculture loans. We prioritise sectors such as agriculture, MSMEs, housing, and education, as they are among the fastest-growing and remain largely underfunded.

To enhance our retail business, the Bank leverages channels such as DSAs (Direct Selling Agents), BCAs (Business Correspondent Agents), and dealer tie-ups. Within the retail lending division, we have established specialised wings for agriculture, forex, MSMEs, and other sectors. To diversify our lending base and cater to as many segments as possible, the Bank has launched several innovative products such as KBL Contractor for contractors, KBL Stri Unique Savings Bank product for women, KBL Peak and Genius for students pursuing higher education, KBL G-Perl Unsecured personal loan for salaried employees of government and public sector entities and KBL CA Credit Line for qualified Cas, KBL Dropline OD for Traders. A dedicated Agriculture Credit Support Group operates within the retail finance division, exclusively catering to agricultural financing. Under various schemes, including the KBL Agro Processing Scheme, KBL Instant Agri Credit Scheme, Kisan Credit Card Scheme, KBL Agri Gold Scheme, Krishik Sarathi Scheme, Krishik Pushpankura Scheme, and Krishik Sinchana Scheme, we offer a wide range of products to individual farmers, joint borrowers, small and marginal farmers, and others engaged in agricultural or allied activities.

Retail loans recorded a steady uptick, reaching INR 46,608.80 crore by 31 MarcRs. 2025. As of 31 MarcRs. 2024, the Banks retail loans stood at INR 41,605.74 crore. Revenue from retail banking reached INR 4699.22 crore (previous year: INR 4,244.25 crore), reinforcing the positive momentum within the segment. This growth, though measured, reflects the Banks continued emphasis on expanding its retail base through

product innovation, deeper outreach, and customer-centric engagement. The performance lays the foundation for stronger traction in the years ahead.

In the MSME sector, we offer products that meet the financial requirements of entrepreneurs, including working capital finance, term loans, and various fund-based and non-fund- based products. Specific schemes such as KBL Contractor Mitra, KBL Micro Mitra, and KBL Export Mitra address the needs of particular segments, while initiatives like the KBL MSME scheme are open to all MSME customers. To support women entrepreneurs, we offer the KBL Mahila Udyog product. The Bank plans to launch an MSME app to serve as a one- stop solution for their requirements. We are also registered as a financier on the TReDS platform, designed to provide finance to MSMEs.

In the agriculture sector, efforts are focused on augmenting Priority Sector Lending (PSL) and meeting sub-targets under PSL. We have increased the number of Agriculture Field Officers (AFOs) and sales officers at the branch level to effectively reach farmers, Self-Help Groups (SHGs), and Joint Liability Groups (JLGs). The focus remains on lending to weaker sections of society, and partnerships with business correspondents and facilitators have strengthened business generation. Over the years, lending to SHGs and microfinance has been intensified, contributing to financial inclusion.

The Treasury operations of the Bank encompass activities aimed at managing statutory reserves, liquidity, investments, and foreign exchange. This includes managing the Statutory Liquidity Ratio (SLR), Cash Reserve Ratio (CRR), trading, and foreign exchange activities. For liquidity management, the Treasury primarily invests in sovereign debt instruments and other fixed-income securities. We also invest in mutual funds, certificates of deposit, and floating-rate instruments to manage short-term surplus liquidity effectively.

Our Integrated Treasury in Mumbai offers a broad range of products and services, including forward contracts and foreign exchange services. We maintain SLR through a portfolio of central government, state government, and government- guaranteed securities, along with other approved securities. These portfolios are actively managed to optimise yield and capitalise on price movements. Activities also extend to trading debt securities, equity securities, and foreign exchange within permissible limits.

Revenue from the treasury segment was INR 1,652.13 crore and INR 1,645.64 crore as of 31 MarcRs. 2024 and 31 MarcRs. 2025, respectively. It contributed INR 157.05 crore (previous year: INR 164.79 crore) to profit before tax and unallocable expenditure. While growth remained broadly stable, the segment continued to play a critical role in maintaining liquidity, optimising returns, and supporting the Banks broader balance sheet strategy in a dynamic interest rate environment.

DCoE & ACoE:

DCoE & ACoE have undertaken many transformative initiatives in 2024-25, a number of which have helped individual departments and businesses improve their efficiency and performance. A few other notable achievements are as follows.

The 12 drill-down self-service agile dashboards now empower our teams with data-driven decision-making capabilities.

ACoE initiatives and campaigns have shown encouraging results, contributing to overall business as acknowledged by the Branch Heads who qualified for the MDs club recently.

The Bank will endeavor to launch more such initiatives leveraging our DCoE and ACoE infrastructure. We request all staff members to make use of these effectively for improving the effectiveness of various Campaigns.

The Bank proposes to adopt AI platforms to improve our Customer Support and Operational efficiencies.

Information Technology:

Last year, the strategy was to build resilience , governance and transparency across the Technology Landscape for the bank. These included implementation of Data Domain Architecture, enhancing customer experience by building high availability for critical mobile &core banking applications and execution of technology Enterprise Technology Service Management for real time Technology Governance. The bank also won prestigious IBA Technology Awards under six categories that validated the technology roadmap strategy.

Bank will be building on the base framework and would be sharpening its focus on Hollowing the Core Strategy , Scaling the Enterprise Architecture by it API 2.0 initiative and Application Consolidation by Technology re-engineering.

Instrumental to achieving success across departments in the Bank, some of their key initiatives during the year included:

• High Availability and Performance Enhancement Environment created for Mobile Banking and Core Banking Platforms, resulting in reduced downtime,

faster performance and the Bank achieved 0.08% transaction declines in UPI transactions. This has also been acknowledged by our customers. We have also been able to give a higher business uptime by recording 99.8% uptime on our Wide Area Network.

• Better User Experience for branch users - Upgradation of more than 1500 desktops and 700 tablets across branches. Furthermore, this year we plan to change more than 4000 desktops in a planned upgrade.

• Improving the Digital Payment Experience for our customers - Implementation of CBDC, GST Payments through UPI, Soundbox QR and Electronic Bank Guarantee has made the banks targeted offerings to its Retail Customers and Merchants.

• Revamping of API Banking and MIS platform-

With the importance of having growth by means of Fintech Partnerships, the Bank has started its journey to significantly improve its API Banking Posture by revamping the API Infrastructure and bringing in transparency to our partners. The Bank has also embarked upon re-architecting the Core Data and MIS platform has been able to complete the first phase of the project by Q4 FY 2024-25.

Other Banking Operations

The Bank is undergoing a digital transformation aimed at enhancing customer experience and operational efficiency. Under the "KBL-VIKAAS" programme, initiated in Fiscal 2017 in consultation with the Boston Consulting Group, we have laid the foundation for our digital strategy. As part of this transformation, we established the Digital Centre of Excellence (DCoE), dedicated to driving digital innovation and technological enhancements.

• Collection of Taxes: Following authorisation by the RBI and execution of an agency business agreement, the Bank collects Direct and Indirect Taxes and Customs duty payments on behalf of CBDT/CBIC through Internet Banking and Over the Counter (OTC) modes.

• Digital Marketing Initiatives: The Bank leverages its digital marketing presence to align with customer expectations. The Analytical Centre of Excellence (ACoE) employs analytical and business intelligence tools to drive targeted campaigns.

• Trade Finance Automation: The Trade Zone module for Forex clients has been enabled to streamline Forex transactions. An outward remittance module (LRS) is available via Internet Banking as part of ADC services.

• Doorstep Gold Loan: The KBL Swarna Bandu product was piloted at selected branches, offering doorstep gold loan services via a tie-up with Sahibandu FinTech Services Private Limited.

• OMNI Channel: We introduced KBL OMNI Channel for corporate internet banking, offering enhanced features for seamless operations.

• Corporate Salary Account: The Bank offers corporate salary savings accounts with value-added services such as concessions on locker rent, airport lounge access, debit cards with higher limits, and various insurance benefits.

• Enhanced WhatsApp Banking: New features include online locker applications, KYC updates, and submission of Positive Pay for issued cheques.

• Bank has worked on below mentioned initiatives

• Implementation of electronic Bank Guarantee (e-BG)

• Expanding our Co-lending portfolio with addition of a new NBFC partnership

• Direct Assignment (Securitization) platform incubated

• Launch of Credit Line on UPI in partnership with Navi

• Personal Loans leveraging the ONDC platform Deposits

The Banks deposits portfolio comprises demand deposits

and term deposits.

• Term Deposits: We offer term deposits (also known as fixed or time deposits) with a fixed return for periods ranging from 7 days to 10 years. Early withdrawal is permitted in accordance with applicable rules, subject to penalties if any. The term deposits include recurring deposits, which allow customers to make deposits over a fixed term at regular intervals. We also offer overdraft facilities against term deposits. Term deposits provide a cost-efficient and stable funding source and remain a key focus area for the Bank. Our retail franchise of term deposits stood at INR 64,615.47 crore, comprising deposits below Rs.3 crore, and accounted for approximately 90.34% of total deposits.

• Savings and Current Accounts: We offer interest-bearing savings accounts primarily for individuals and trusts, and noninterest-bearing current accounts primarily for businesses. CASA deposits accounted for 31.75% of total deposits, reflecting the strength of our retail franchise. The average cost of term deposits was 6.68% and 7.04% in Fiscal 2024 and Fiscal 2025, respectively. The cost of total deposits was 5.32% and 5.62% in Fiscal 2024 and Fiscal 2025, respectively.

Debit Card services

As on MarcRs. 2025, we have a debit card base of 55.51 Lakhs. The debit cards are issued in association with Visa and RuPay. The select cards comes with features of PA Cover, domestic lounge facilities, discount on shopping sites, Health packages.

Banking Outlets and Alternate Delivery Channels (ADCs)

Though the Banks presence is predominant in South India, we have been expanding our network of branches and controlling offices across the country after assessing business potential. As of 31 MarcRs. 2025, the Bank had 2468 service outlets, including 952 branches, one extension counter, 837 ATMs, and 679 recyclers across 22 states and 2 union territories.

In addition, the Bank operates one data centres with a disaster recovery centre and a near-line site (NLS), two service branches, five currency chests, two central processing centres, one Digital Centres of Excellence, thirteen asset recovery management branches, 5 Retail Loan Processing and Sanction Centre (RLPSC), one Central Loan Processing and Sanctioning Centre for Sanctioning of retail loans (CLPSC) and 2 Retail Assets Centre (RAC) loan sanctioning centres for retail loan approvals. During the financial year under review, your Bank has opened Thirty-One new branches.

Mobile & Net Banking

Lakhs. The Bank has launched the UPI RuPay Credit Card facility to offer our customers a wider range of credit card options and enhanced convenience in digital payments.

Our key digital banking channels include the KBL Mobile Plus app, KBL Money Click internet banking, and the KBL ONE omni channel, Karnataka Bank Digital Rupee Mobile application (CBDC). In addition to ATM/CR services, we offer value-added features such as deposit loan opening and closure, email OTP enablement for NRI customers, bill payments and recharges via BillDesk Hexagon Solutions, re-KYC through mobile banking, and single-tap WhatsApp banking.

As of 31 MarcRs. 2025, 96.08% of transactions were performed through digital banking channels. The Bank had approximately 0.078 crore internet banking users and 0.38 crore mobile banking users, generating over 1.25 crore internet banking transactions and 93.08 crore mobile banking transactions. In Fiscal 2025, the Bank had 0.11 crore UPI BHIM mobile payment customers generating 0.27 crore UPI BHIM transactions. Digital enablement through QR codes also gained traction with over 0.125 Crore registrations, while Karnataka Bank Digital Rupee (CBDC) adoption recorded 0.013 Crore users

Insurance

Life Insurance: The Bank remains committed to providing comprehensive life insurance solutions through established partnerships. We have maintained our association with PNB MetLife Insurance Company Limited for over two decades, partnered with Life Insurance Corporation of India since 2017, collaborated with Bharti AXA Life Insurance Limited since 2019, Bajaj Allianz Life Insurance Company Limited, HDFC Life Insurance Company Ltd. As of MarcRs. 2024, commission income from the life insurance business was INR 89.24 crore.

General Insurance: The Bank is associated with Universal Sompo General Insurance Co. Limited, Bajaj Allianz General Insurance Company Limited and ICICI Lombard General Insurance Company Ltd.to offer health and non-life insurance products. As part of our financial security initiatives, we launched the Group Personal Accident (GPA) insurance scheme, "KBL Suraksha", through Universal Sompo General Insurance Co. Limited. The scheme provides accidental death cover at a nominal premium. Savings bank account holders aged 18 to 70 years can subscribe by paying INR 369 for INR 10 lakh coverage or INR 200 for INR 5 lakh coverage. The policy is renewable annually. As of MarcRs. 2025, commission income from general insurance was INR 25.13 crore.

The Bank also offers social security schemes such as Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), National Pension Scheme (NPS), and Atal Pension Yojana (APY) across all branches.

Cobranded Credit Card

Your Bank launched a Co-Branded Credit card on MarcRs. 31, 2017, in collaboration with SBI Cards and presently issuing two variants of Credit cards namely Simply Save card & Prime card. During the year, the Bank issued 19,786 Lakhs cobranded credit cards with total outstanding cards at 3,81,612

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. We currently have 2-in-1 tie-up arrangements with Way2Wealth Securities Private Limited, IIFL Securities Limited, and FISDOM to offer wealth management, online demat, and trading services to customers.

Distribution of Mutual Fund Units: The Bank is an AMFI- registered mutual fund distributor and is empanelled with 8 asset management companies in India to distribute mutual fund products through our branch network. Since 2019, we have partnered with Finwizard Technology Private Limited (FISDOM) for the online sale of mutual funds via our KBL Mobile Plus app under a referral arrangement.

Point of Sale Network

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 and Bijilipay, enabling us to act as an independent referral service provider for marketing, procurement, and assistance in delivering PoS services.

We have also launched a Cash@POS facility through our network of over 10747 POS terminals at merchant establishments across India. Instant Voice Payment Confirmation by soundbox with Bluetooth Connectivity were issued to merchants

FASTag Facility

The Bank launched KBL FASTag on 25 August 2021 and expects it to be a strong revenue stream. The recharge function is enabled through mobile banking, UPI, and the NETC FASTag portal.

Human resources (ISO-9001:2015 certified):

As on MarcRs. 31, 2025, the Bank had 8750 employees, of whom 2778 are women employees, constituting around 31.75% of the total strength. The Bank expanded recruitment efforts in Tier 2 and Tier 3 cities nationwide, resulting in 38.46% female representation among new hires. To accelerate and streamline talent acquisition while promoting inclusivity, recruitment efforts were initiated through campus placements and specialized agencies. Priority was first given to internal job postings, and subsequently, external recruitment was pursued for specialized roles. An induction course is being provided to new joiners, and monthly performance reviews are being conducted to monitor progress and reinforce key learning objectives.

Empowering employees to innovate, capacity building, Diverse workforce, engagement, retention, comprehensive training and e-learning, Employee well-being, HR innovations, IJP Model for suitable candidates at suitable positions, hiring experts for specific roles through external recruitment.

Your Bank has put in place 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. At the start of the fiscal year, no complaints were pending. During the year, three complaints were received, of which two were upheld.

A 96%+ employee retention rate was achieved, driven by strategic career planning, robust internal mobility, and the institutions century-long legacy. Factors such as the banks consistent growth, organizational trust, and inclusive opportunities for grassroots personnel played a significant role in fostering longterm employee commitment.

100% of staff completed annual training on workplace dignity and ethics.

Association of India (FEDAI) at Mumbai and Bankers Institute of Rural Development (BIRD) Mangaluru & Lucknow.

During the year 2024-25, we intended to train 3284 staff members (around 40% of the total staff as on 01.04.2024, excluding Part Time Sub Staff). As on 31.03.2025, 5772 staff members have undergone training/workshop/seminar in our Staff Training College and other external Training Institutions, as against 6352 for the corresponding previous year. We have trained 67% of the staff members for the financial year 202425, i.e., 84.46% of Executives/Officers and 56.12% of Award Staff Members have undergone training during said period.

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.

Initiatives comprised medical helplines, yoga and wellness sessions, and flexible work-from-home options aligned with the banks operational needs.

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. Staff members must be 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.

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, your Bank has maintained cordial industrial relations and effective employee discipline.

Review of Financial Performance (Standalone): Summary:

As on MarcRs. 31, 2025, the Business Turnover of the Bank reached a new high of RS.1,82,766.21 crore with a YoY growth of 6.89% as against RS.1,70,990 crore as on 31^st MarcRs. 2024. During the FY 2024-25, the Bank registered a net profit of RS.1,272.37 crore for FY 2025 and Rs. 1306.28 crore in FY 24.

The Bank has so far hosted 153 e-learning modules on the ELM platform. 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.

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 the 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 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

In FY25, there have been one significant change in our actuarial assumption, towards salary escalation rate related to the superannuation and retirement benefits, across Pension, Gratuity, PL encashment and Sick Leave. Earlier the bank was considering 4% salary escalation assumption towards Pension, Gratuity, PL encashment and Sick leave, which was changed to 4% towards Pension Liability, and 5% towards Gratuity, PL encashment and Sick Leave. The impact of this change, resulted in a one-time incremental pre-tax provision of 83 crore.

In terms of the revised RBI guidelines on investments, the Bank has as on April 01, 2024 re-classified and valued as transitional adjustments, Available For Sale (AFS) portfolio and Other securities which was credited to "AFS Reserve" and opening "Revenue Reserve" to the extent of RS. 106.88 crore and RS. 24.68 crore, respectively. Further, in Compliance with the Master Directions, the valuation gains and losses at the year ended MarcRs. 31, 2025 across all performing investments, irrespective of classification (i.e., Government securities, Other approved securities, Bonds and Debentures, etc.), held under AFS portfolio is aggregated and the net gain of RS. 35.80 crore (net of taxes) for the year has been directly credited to AFS reserve. The securities held in Fair Value through Profit and Loss (FVTPL) and Held for Trade (HFT) are fair valued as at the year end and the revaluation gain (net) arising on such valuation

Karnataka Bank

101 Years of Trust. Next Century Build

has been credited to the Profit and Loss amounting to RS. 2.23 crore. All investment purchased and sold during the year ended MarcRs. 31, 2025 are done in compliance with the requirement of the Master Directions and revised accounting policy. Had the Bank continued to follow the earlier accounting policy, "interest income on investments" would have been lower by RS. 21.56 crore for the year, "Other Income" would have been higher by RS. 169.07 crore for the year and "Profit before Tax" would have been higher by RS. 147.51 crore for the year.

Had the Bank continued to follow the earlier accounting policy, the profit after tax would have become RS.1382.75 crores and reflecting a growth of 8.68% for the year ended MarcRs. 31,2025.

Gross Advance stood at H77,958.72 crore as on 31^st MarcRs. 2025, reflecting a YOY growth of 6.8% over MarcRs. 2024 from H73,001.66 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, with net book accretion of RS.4,373 crore in the RAM Segment during the last 12 months. During the same period, Direct to Corporate advances grew from RS.16,997 crores as of MarcRs. 2024 to RS.19,146 Crores as of MarcRs. 2025, a net annual accretion of RS.2,149 crore. The Bank has also been committed to reducing its low-yielding large midcorporate as well as some opportunistic treasury-based lending that we were doing and those have come down and here again, the Bank replaced RS.1,300 crore of low-yielding NBFCs with higher-yielding direct to corporate advances. So basically, there

is a churn in the portfolio and a growth in the portfolio, and this same strategy will continue for FY26 also as we go forward.

Deposits touched RS.1,04,807.49 crore as on MarcRs. 31^st, 2025, reflecting a YOY growth of 6.96% over MarcRs. 2024 from H97,988.22 crore. CASA deposits stood at 31.75% of Deposits as against 31.94% in MarcRs. 2024. In absolute terms, our CASA Deposits have grown 6.35% YOY from RS.31,293 crore as on MarcRs. 31, 2024, to RS.33,281 crore as on MarcRs. 31, 2025, a net accretion of RS.1,988 crore. Retail Term Deposits less than RS.3 crore have seen a growth from H60,002 crore as on MarcRs. 31, 2024, to H64,616 crore as on MarcRs. 31,2025, a net accretion of RS.4,614 crore at a YOY growth rate of 7.7%.

The asset quality improved Y-O-Y with a 45 bps and 27 bps reduction, respectively, under Gross NPAs and Net NPAs. The Bank has a Provision Coverage Ratio (PCR), including Technical write-off at 81.42% in MarcRs. 2025. The Bank would improve the PCR by 1% every quarter.

CRAR stands highest in recent times for the Bank it is 19.85% (Tier I is 18.35% and Tier II 1.50%) 18% for the previous year. This includes ploughing back the profits for the entire year.

Overall, the financial year 2024-25 was a year of a major transitional period in the history of Karnataka Bank, with various changes that we have been bringing in since 2023. These will serve as long-term and strong foundations to build upon and improve our performance going forward.

The following table sets forth the analysis of Net interest income and Interest spread:

Jin Crore)	FY25	FY24	Change(%)
Interest earned	9013.60	8,298.50	8.62
Interest expended	5703.22	4,999.78	14.06
Net Interest Income	3310.38	3,298.72	0.35
Net Interest Margin (%)	3.19	3.52	-33 bps
Yield on Advances (%)	9.47	9.94	-47 bps
Cost of Deposits (%)	5.62	5.34	28 bps
Interest Spread in Lending (%)	3.85	4.60	-75 bps

Net Interest Income: NII at Rs.3,310.38 crore in FY 25, as against Rs. 3,298.72 crore in FY 24. While Gross Interest Income has grown 8.62% YOY during this period, the increased Cost of Funds and Cost of deposits have resulted in overall NII growth remaining flat. It is worth noting that reclassification of penal charges from Interest income to other income has resulted in an NII deduction of Rs. 61 crore during FY 25. Excluding the impact of this reclassification, NII for 12 months would have grown by 2.2% YOY

Interest Earned

During FY25, your Bank earned an interest income of H9,013.60 crore, up by 8.62% over H8,298.50 crore earned in FY24.

Jin Crore)	FY25	FY24	Change (%)
Interest on advances and Discount on bills	7009.38	6,524.78	7.43
Income on investments	1466.22	1,500.18	(2.26)
Interest on balances with RBI and inter-bank Funds	41.37	18.06	129.06
Other interest income	496.63	255.48	94%
Interest earned	9013.60	8,298.50	8.62

The increase in Interest on advances and Discount on bills was by 7.43%. The Interest Rate Changes- reduction in Repo Rates during the year, leading to a reduction in yield, which, in conjunction with rising cost of deposits, has impacted margins across the banking industry.

Other Income

Jin Crore)	FY25	FY24	Change (%)
Other Income	269.52	1318.92	(3.74)

Other income decreased to RS.1269.52 crore from RS.1318.92 crore, i.e., by 3.74% primarily due to a decrease in non-fund business during the FY 2024-25.

Interest Expense

The following table sets forth the details of interest expense.

Jin Crore)	FY25	FY24	Change (%)
Interest on deposits	5536.41	4,779.65	15.83
Interest on borrowings from RBI and Banks	7.61	25.37	(70.00)
Other interest	159.19	194.74	(18.25)
Interest expended	5703.21	4,999.77	14.06

Operating Expenses

The following table sets forth the broad lines of operating expenses.

Jin Crore)		FY25	FY24	Change (%)
Employee cost		1538.39	1,372.84	12.06
Depreciation		85.05	71.82	18.42
Other administrative expenses		1129.41	1,009.67	11.86
Total operating expenses	A	2752.85	2,454.33	12.16
Total income (Less) Interest Expenditure	B	4579.91	4,617.64	(0.81)
Cost to Income Ratio (%)	C = A/B	60.11	53.15	696 bps

For the year ended MarcRs. 31,2025, the cost-to-income Ratio stood at 60.11%. Excluding the impact of additional provisioning taken to increase actuarial assumptions for retiral benefits, the adjusted Cost to Income Ratio for the year would stand at 58.30%. The Bank has taken up various cost rationalization efforts, including renegotiating rentals, vendor commercials and keeping operating expenses under check are happening. So, with the strategies to increase NII and NIM, and through our advanced deposit strategies, the banks cost-to-income ratio should come down to about 55% by the end of this Financial Year, FY26.

Provisions and contingencies

The following table sets forth the details of provisions for NPA, etc.

Jin Crore)	FY25	FY24	Change (%)
NPA	282.32	597.38	-52.74%
Standard advances (including NPV of Restructured Standard advances)	-105.93	-7.45	1322.01%
Investments	0.00	-8.27	100.00%
Others	10.05	18.92	-46.88%
Provision for Tax	368.23	256.45	43.59%
Total provisions	554.67	857.03	-35.28%

During FY25, Bank has resorted to accelerated provisioning for non-performing advances banking on the strength of its Balance Sheet, thereby having PCR up to 81.42% levels and moderating Net NPAs to below 2% levels. The provision on Restructured advances has decreased as there was a reduction in the Restructured portfolio by 37.01% thereby reducing the provisioning requirement for such advances.

Deposits

The following table sets forth the details of the deposits.

Jin Crore)	FY25	FY24	Change(%)
CASA deposits	33,281	31,293	6.35
Term deposits	71,527	66,695	7.24
Others
Total	104,807	97,988	6.96

Even though there was higher growth in CASA deposits, there was an increase in the cost of deposits due to a rise in the interest scenario from 5.34% in FY24 to 5.62% in FY25, thus pressurizing NIM levels.

Advances

During FY 2024-25, advances grew by 6.80%. The details are as under:

Jin Crore)	FY25	FY24	Change (%)
Advances	^^^^:77,958.72	73,001.66	6.79

Asset quality / Provisioning

Asset quality refers to the recoverability of an advance, measured by the behavior 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.

Classification of NPAs is as follows:

Jin Crore)	Provision held & Gross NPA other netting Items		Net NPA
Sub-standard	639.34	136.45	502.90
Doubtful	1317.72	804.10	441.19
Loss	445.02	384.55	60.46
Total NPA	2402.08	1325.10	1004.55
NPA%	3.08%	-	1.31%

Capital Adequacy

Your 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:

Jin Crore)	As on 31.3.2025	As on 31.3.2024
A Tier I Capital
Paid-up Equity Capital	377.95	377.26
Reserves under Tier I Cap.	10,915.88	9731.75
Total Tier I Capital	11,293.83	10,109.01
B Tier II Capital
General Provisions & Reserves	625.13	844.13
Subordinated Debts	300.00	300.00
Eligible Tier II Capital	925.13	1,144.13
C Total Capital Tier I and IIA+B	12,218.96	11,253.14
D Risk-Weighted Assets	61,542.51	62,532.53
E CRAR Tier I Capital A/D	18.35%	16.17%
F CRAR Tier II Capital B/D	1.50%	1.83%
G CRAR Tier I and Tier II Capital C/D	19.85%	18.00%

Key Ratios

Ratio	UoM	As on/FYE 31.03.2025	As on/FYE 31.03.2024
Productivity ratio
Operating Profit per employee	H in Crore	0.21	0.24
Operating Profit per branch	H in Crore	1.92	2.34
Business per employee	H in Crore	20.89	19.21
Business per branch	H in Crore	191.98	185.53
Profitability
Net interest margin	%	3.19	3.52
Interest spread	%	3.85	4.60
Cost to income	%	60.11	53.15
Asset quality
Gross NPA	%	3.08	3.53
Net NPA	%	1.31	1.58
Capital efficiency
Business turnover	H in Crore	1,82,766	1,70,990
Credit deposit ratio	%	74.38	74.50
Return on assets	%	1.05	1.19
Return on equity	%	11.10	13.71
Provision coverage ratio (PCR)	%	81.42	79.22
Capital-To-Risk Weighted Assets Ratio (CRAR)	%	19.85	18.00
Shareholder value
Earnings per share	H	33.69	39.84
Book value per share	H	319.57	287.57

Risk Management Risk and Mitigation

A Gist of how the Bank manages the key risks associated with its operations is provided hereunder:

Type of Risk	Mitigation Process	Strategy
CREDIT RISK: Credit risk is the possibility of a banks borrower or counterparty failing to meet their obligations in accordance with agreed terms.	Your Bank has developed an online comprehensive credit risk rating system for quantifying & aggregating the credit risk of all borrower accounts across various exposures. The Bank has introduced corporate rating models, specialized lending rating models, the Retail Score Card model and the Facility Rating Model. Using Business Rule Engine (BRE), the Bank has automated the retail underwriting and credit decision process. Credit Audits, Legal Audits and Stock Audits of large credit exposures are conducted to limit the magnitude of credit risk.	Ensuring healthy asset quality by continuous monitoring & collection follow-ups through a separate department, viz. Credit Monitoring Department (CrMD).
MARKET RISK: Market risk is the risk to earnings & capital resulting from movements in market prices, particularly changes in interest rates, foreign exchange rates & equity & commodity prices, including the volatilities resulting from those changes.	The Bank has put in place Board-approved Policy on Integrated Treasury, Policy on Asset Liability Management (ALM), the Policy on Market Risk Management and Policy on Fund Transfer Pricing for effective management of Market Risk in the Bank. Besides, there are inbuilt thresholds for close monitoring of the market movement.	Optimizing returns from various assets & market- linked instruments, treasury operations, etc.
Type of Risk	Mitigation Process	Strategy
LIQUIDITY RISK: Liquidity risk arises when a bank fails to meet its contractual obligations in its daily operations due to an inadequate funds flow	Proactive analysis of different circumstances, viz. Funding risks, Time risks, and call risks, which would cause liquidity risk to the banks. The liquidity risk is assessed using gap analysis for maturity mismatch based on residual maturity in different time buckets. Advanced techniques such as Stress testing, simulation, sensitivity analysis, etc., are conducted at regular intervals to monitor the liquidity and to draw the action plan if required.	Advanced assessment of the need for funds and coordinating with various sources of funds available to the Bank under normal and stressed conditions.
INTEREST RATE RISK: This is a Risk that arises when the financial value of assets or liabilities (or inflows /outflows) is altered because of fluctuations in interest rates.	An analysis is conducted by applying various shocks on product-wise weighted average interest rates in each time band. The interest rate risk is viewed from different perspectives, viz. Earnings Perspective and Economic Value Perspective. The former is measured using Earnings-at-Risk (EaR) under Traditional Gap Analysis (TGA), while the latter is measured through changes in the Economic Value of Equity (EVE) under Duration Gap Analysis (DGA).	Ensuring an appropriate trade-off between the cost of deposits and the interest rate on advances.
CYBER RISK: This is a Risk associated with financial/data loss, disruption, or damage to the reputation of an organization from unauthorized/ deliberate malafide or erroneous use of information systems.	The Bank has taken adequate steps to address cyber risks by implementing the Cyber Security Framework as per RBI guidelines and has deployed various Information Security systems such as Application Firewall, Web Security Gateway, End Point Security systems, Honey Pot systems and Privilege Identity Management (PIM), etc. to protect its information systems. The Bank has also put in place an in-house captive Security Operations Center (SOC), wherein the logs are monitored through Security Information Event Management (SIEM) tools.	Strengthening the Banks internal cyber resilience system while keeping a watch on the cyber risk associated incidents in the outside world.
	The Bank has implemented Digital Payment Security Controls for Alternate Delivery Channel (ADC) products. The Bank was also subjected to cyber cybersecurity audit by the RBI. In order to protect customer data, and to ensure its secure access, Bank has adopted the cybersecurity controls prescribed by RBIs cybersecurity framework.
	The Bank is certified with ISO/IEC 27001:2022 standards for the Information Security Management System (ISMS) on the systems and procedures maintained at Technology & Digital Hub, Co-located data centre (DC/DR). Near Line site, and Digital Centre of Excellence (DCoE), which assures a higher level of security features in all its applications and processes. Bank is certified with PCI-DSS version 4.0.1 standards with regard to the security of its card data environment, thereby assuring confidence to the customer on data security controls.
	As part of its cyber resilience measures, the Bank has ensured sufficient redundancy of its cybersecurity infrastructure; subscribed to proactive cyber risk monitoring services such as dark web monitoring, attack surface monitoring; Threat intel feeds from national agencies and reputed service providers, Breach assessment and forensic retainer services and Cyber insurance. The Bank also has implemented a cloud strategy as part of its resiliency initiatives.

Internal Control Systems - Adequacy and Compliance

Your 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.

Your 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)

Your 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 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 your Bank for Departments at the Head Office and Regional Offices.

Concurrent Audit, Credit & Stock Audit

Besides, your Bank also covers select branches under concurrent audit as per the Concurrent Audit Policy of the Bank and Short Inspection of all the branches as well. Concurrent Audit of Treasury functions (both domestic and forex), Integrated Treasury, Forex designated branches, Centralised Loan Processing Hub, Centralised Loan Sanctioning Centre, Centralized Account Verification Cell, SWIFT reconciliation, and external Integrated Audit of Centralised Reconciliation Cell is 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.

Type of Risk	Mitigation Process	Strategy
OPERATIONAL RISK: Operational risk is the risk of direct or indirect loss resulting from breakdowns in internal processes, people, systems and external events.	The Bank has initiated several measures to manage operational risk through the identification, assessment and monitoring of inherent risks in all its business processes. Systems and controls have been built in and around the Core Banking Solution to avert probable fraud incidents.	Introduction/modifications of products/ processes would be taken up postassessments primarily using the Risk and Control Self-Assessment (RCSA) to identify, evaluate, monitor & mitigate key operational risks within the Bank.
	Bank has also implemented the Enterprise Level Fraud Risk Management System (ELFRMS) to identify the potential fraudulent transactions under various Alternate Delivery Channels (ADC) and Core Banking Solution (CBS). The system is intended to identify the potentially fraudulent transactions on a real-time basis, based on predefined probable fraud scenarios. ELFRMS operates 24*7 with a DR set up to ensure business continuity.
		The Bank has implemented an Operational Risk Management application to effectively manage operational risk.

Information Systems Audit

savings accounts, leveraging its expanded branch network and digital onboarding capabilities.

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. Your 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.

Your 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.

This will help in containing the cost of funds, especially as interest rates in the system gradually come down following the RBIs easing. The overall funding strategy is to support planned asset growth while optimizing the cost structure. Marketing campaigns, new product variants (for example, flexible recurring deposits for millennials), and continued superior service are planned to attract and retain deposit customers in a competitive market.

• Customer Experience & Brand Building: The Bank recognizes that excellent customer service is a key differentiator. In FY26, Karnataka Bank will launch a comprehensive Customer Experience (CX) enhancement program. This will include regular service quality audits, customer feedback loops, and training employees in customer-centric behaviour across all touchpoints. With the Banks rich legacy crossing 100 years, the brand is being refreshed to appeal to modern sensibilities while retaining its core values of trust and reliability. Marketing and branding efforts will highlight Karnataka Bank as a technology-savvy, relationship-oriented "Bank for All Generations." The Bank also plans community engagement and CSR initiatives that resonate with its brand ethos, thereby strengthening its social footprint.

The Path Ahead: Strategic Roadmap for FY 2025-26

As Karnataka Bank enters FY2025-26, it is well-positioned to pursue accelerated growth founded on the strong gains of the past year. The Banks strategy for FY26 is aligned with the evolving economic environment and its long-term vision of sustainable, profitable growth. Key strategic priorities and outlook for the coming year include:

• Portfolio Rebalancing towards Retail & MSME: The

Bank will continue to realign its lending mix towards the RAM (Retail, Agriculture, and Micro, Small & Medium Enterprises) sectors, which typically offer better yields and diversified risk. Having reduced dependence on low- yielding large corporate and NBFC exposures, Karnataka Bank plans to vigorously grow its retail (housing, personal, auto, gold loans) and MSME loan portfolios in FY26.

On the corporate front, the Bank will focus on mid-market corporates and selectively participate in higher-rated credit opportunities, while avoiding concentration risks. This calibrated approach to the loan mix is expected to not only accelerate growth but also enhance the Net Interest Margin (NIM). Internally, management anticipates a moderate NIM expansion (by ~15-20 bps) going forward, supported by the shift to high-margin loans and lower cost of funds.

• Deposit Mobilization & Cost of Funds: In tandem with asset growth, the Banks strategy places equal emphasis on resource mobilization. Karnataka Bank aims to augment its deposit base with an emphasis on granular and low-cost deposits. The thrust will be on growing the CASA base through customer acquisition in current and

• Asset Quality & Risk Management: Even as growth is pursued, the Banks strategy places paramount importance on preserving its hard-won asset quality. The focus for FY26 will be on maintaining GNPA and net NPA at low levels and a credit cost under control, building on the improvements achieved. The Banks risk management framework is also being upgraded with new risk modelling tools and an integrated risk management system to better evaluate credit, market, and operational risks in real time. Capital adequacy is comfortable, but the Bank will consider raising additional capital in FY26 if growth significantly exceeds internal accruals, ensuring capital remains well above regulatory requirements and supports future expansion.

• Digital Transformation & Innovation: Building on the progress of FY25, the Bank will expedite initiatives under KBL VIKAAS 3.0 to realize its vision of becoming a digitally empowered bank. Key areas include the roll-out of end-to-end digital loan processing for select products (to significantly cut turnaround times), expansion of API banking partnerships (particularly to participate in emerging opportunities like embedded credit and fintech marketplaces), and enhancing analytics for personalized customer offerings. The Bank will also explore adopting emerging technologies such as Artificial Intelligence/ Machine Learning (AI/ML) for credit scoring and chatbot- based customer service to further improve efficiency and customer experience. Cybersecurity will remain a top priority; continuous investments in security infrastructure and governance will be made to safeguard the Bank and its customers in the digital realm. Internally, a culture of innovation is being fostered - the Bank plans to set up

a "Digital Innovation Lab" that brings together crossfunctional teams to pilot new ideas (for example, using blockchain for trade finance or improving internal MIS through AI). These efforts are expected to not only improve operational metrics but also open new avenues for customer acquisition (especially younger demographics and digital-native customers) and non-interest income.

1. Digital Omnichannel Transformation: Executing

a transformation strategy to create a seamless digital experience across all channels, starting with Centralisation and Digitisation of Customer service requests across the Bank.

2. Data Governance and Warehouse Transformation:

Bank will be building on the base framework and would be sharpening its focus on Hollowing the Core Strategy , Scaling the Enterprise Architecture by API 2.0 initiative and Application Consolidation by Technology re-engineering.

3. National Back Office Transformation : Revamping the national back-office operations to enhance efficiency and service delivery.

4. Supply Chain / Trade Finance Platform: Setting up a supply chain financing platform for the Bank to focus on dealer financing and inventory financing for MSMEs.

5. Retail Asset Centre: PAN India scale-up of the Retail Asset processing hubs to ensure increased business throughput and operational efficiencies.

6. Unified Wealth Management Platform: Integrated wealth platform for Insurance, Mutual Funds and other third-party products on Assisted and DIY mode.

7. Payment Channels-

a. An Integrated Merchant App enabling QR and POS payments for merchants (MSMEs).

b. Revamped Retail Mobile Banking App with superior user experience and interface.

8. Core Systems (LOS/LMS) Transformation: The Major systems, including Loan Origination Systems (LOS), and Loan Management Systems (LMS) will be overhauled to streamline processes and improve performance.

9. Gen AI initiatives: The Bank is piloting internal use cases that enable Sales teams to manage their funnel better with tailored scripts looking at product suitability, features, campaign and customer data.