Kotak Mahindra Bank Q2 results: Net profit below estimates due to RBI ban and rising NPA bite

Mumbai: Kotak Mahindra Bank reported a 5% year-on-year rise in standalone profits to Rs 3,344 crore in the quarter ended September 2024 from Rs 3,191 crore a year ago, driven by an 11% rise in net interest income even as margins fell and provisions for bad debts assets increased. The bank’s profits were lower than the Rs 3,424 crore expected by a Bloomberg survey of analysts.

Earnings were helped by 11% growth in net interest income (NII), or the difference between interest earned on loans and interest paid on deposits, led by 17% growth in advances at 4 .19 lakh crore in September 2024.

CEO Ashok Vaswani said the bank has seen some slowdown in rural banking, commercial vehicles, microfinance and consumer lending businesses, but expressed hope that these businesses would pick up from the festive season at the end of this month.

The ban imposed by the Reserve Bank of India on April 24 on the bank from onboarding new customers to its mobile and online banking channels and issuing new credit cards continued to impact the numbers, as unsecured retail advances as a percentage of net advances fell to 11.3% from 11.6% a. previous year.

However, it would be allowed to provide these services to its existing clients. Vaswani said the bank is “working hard” to meet its commitments to the RBI.

Slower growth in high-yield consumer finance businesses also hit Kotak’s margins. The net interest margin (NIM) or the difference between the yield earned on loans and the interest paid on deposits fell to 4.91% in September 2024 from 5.22% a year ago. Devang Gheewalla, the group’s chief financial officer, said yields have fallen as consumer loans have replaced lower-yielding secured loans such as housing and loans to small businesses and businesses. The slowdown in consumer lending has also forced the bank to find innovative ways to maintain growth. On Friday, Kotak said it will buy Rs 4.1 billion personal loans from Standard Chartered.

Vaswani said the purchase is in line with the bank’s acquisition strategy. “It provides us with 95,000 wealthy clients with whom we can develop relationships in the future. The typical maturity of these loans is four years, of which between two and two and a half years have been completed. We will look to do more transactions of this type,” Vaswani said. .

He said the bank still has ambitions to increase unsecured lending to the mid-teens. About 50% of the bank’s consumer loans are unsecured personal loans.

The bank’s gross non-performing loans rose to 1.49% of total loans from 1.39% a year ago, driven by deviations in unsecured loans such as credit cards and microfinance. Fresh slippages rose 38% to Rs 1,875 crore in September 2024 from Rs 1,358 crore in the quarter ended June 2024.

Gheewalla said 30% to 40% of the diversions came from the credit card business.

“We are seeing some tension in the unsecured business, but it is in line with the market. This is also coming at a time when the book is not growing due to RBI action,” Gheewalla said.

The rise in bad loans also led to a 14% rise in provisions compared to June, from Rs 578 crore to Rs 660 crore, which hit profits.

Among subsidiaries, Kotak Securities reported a 37% rise in its net profit to Rs 444 crore as of end-September 2024, while Kotak Mahindra Life reported a 46% growth in its net profit to Rs 360 crore.

Manish Chowdhury, head of research at Stoxbox, said the significant compression in NIMs is a concern for the bank.

“This compression is due to the rise in high cost of deposits, an industry-wide trend from which Kotak Mahindra Bank has not been immune. The increasing dependence on these high cost deposits is compressing margins, creating a scenario challenging for the bank,” Chowdhury said in a post-results comment.