Stock valuation involves multiple methodologies, yet none can provide exact intrinsic values, mainly due to the subjective nature of the inputs.
Determining whether a stock is undervalued can be approached through various techniques. In this editorial, we will examine the valuation of Karnataka Bank based on a few parameters.
This is purely for informational purposes and should not be considered as a stock recommendation.
About Karnataka Bank
Karnataka Bank is a private sector bank headquartered in Mangalore, Karnataka, established in 1924 to serve local banking needs and promote regional economic growth. It focuses on treasury, corporate/wholesale banking, retail banking, and other operations.
Retail banking offers loans for homes, vehicles, education, MSMEs, gold, and more (up to Rs 75 m), alongside savings/current accounts, deposits, and insurance. Corporate banking provides term loans, working capital, trade finance, and forex services.
How Karnataka Bank’s Valuation Compares to its Peers
It’s not easy to make a straight forward comparison in the case of banks as there could be variations
in size and market cap. But this is how a few banks compare with Karnataka Bank based on certain valuation metrics.
Karnataka Bank has a reasonably good valuation with the stock quoting below book value and a PE of just 7.1. The dividend yield at 2.3% is also decent. While the networth of the bank was Rs 120,833 m at the end of FY25, the current market cap of Rs 80,880 m is well below the networth.
Q2 FY26 Performance
Let’s look at how the bank performed on the financial front in the quarter ending September 2025…
Profitability
- Gross interest income, interest expense, and net interest income (NII) for Q2 FY26 decreased by 3.6% QoQ.
- The net interest margin (NIM) declined to 2.72% in Q2FY26, down from 2.82% in Q1FY26.
- Net profits for Q2FY26 stood at Rs 3,191 m vs Rs 2,924 m in Q1FY26.
- ROA and ROE stood at 1.03% and 10.14% respectively for Q2FY26.
Asset Quality and Liability
- Gross NPA dropped to 3.33% as on 30 September 2025, against 3.46% as on 30 June 2025.
- Net NPA also decreased to 1.35% as on 30 September 2025 against 1.44% on 30 June 2025.
- Credit cost for the quarter stood at 0.03% against 0.16% in Q1FY26.
- CASA ratio as on 30 September 2025 stood at 31.01% against 30.84% on 30 June 2025.
Products and Digitisation
- Digital footprint increase – 0.45 lakh+ mobile application downloads during Q2 FY26.
- 22,000+ new debit cards added to Karnataka Bank’s network during Q2 FY26.
- Launch/revamp of products and services to cater to the ever-evolving needs of customers.
- Revamp of credit policy across key products viz., housing, mortgage, lease N cash, gold and MSME loans.
What Next for Karnataka Bank?
In line with its long-term strategy, Karnataka Bank will continue to prioritise asset quality and financial prudence. Robust risk management frameworks, tighter governance protocols, and forward looking stress-testing practices have helped the bank to navigate uncertainties while safeguarding its balance sheet.
The lending portfolio has grown more diversified, with greater attention to low-risk segments. Karnataka Bank has redoubled efforts to grow its CASA and retail deposit base through targeted offerings and customer engagement programmes.
On the digital front, the bank has seen substantial progress. The goal is not only to digitise its services but to enhance inclusion, improve convenience, and futureproof the operating model.
Key digital rollouts include:
- A new wealth management platform that offers mutual fund and insurance options to customers under one interface.
- A revamped mobile banking app that is more intuitive, especially for younger users.
- A student-focused joint loan and savings account product, designed for flexibility and digital-native features.
Should you consider the stock of Karnataka Bank?
There has been a tendency on the part of the Karnataka Bank stock to trade at low price to earnings multiples. Valuations can indeed stay irrational for long periods, sometimes defying logic and historical precedent.
Market prices are driven not only by fundamentals but by investor psychology, including greed, fear, and momentum.
Happy investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here…
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