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Kotak Bank net income rises over 25%, bad loans decline, record margins

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Kotak Bank net income up 26% on bad loans, record margin fall

Mumbai:

Private sector lender Kotak Mahindra Bank on Saturday reported a 26 per cent jump in net income to Rs 2,071.15 crore in the June quarter, buoyed by record margins and a fall in bad loans.

On a consolidated basis, the city-headquartered financial services group, which is also involved in life and non-life insurance, share broking, asset reconstruction and AIF, posted a 53 per cent growth in net income to Rs 2,755 crore. June quarter compared to the same period a year ago, the bank said.

The bank has high profitability despite booking losses of over Rs 800 crore from treasury operations.

Chief Financial Officer Jaimin Bhatt declined to divulge whether the bank has government securities (government securities) in excess of the regulatory requirement of 18 per cent.

In low credit demand or bank credit scenarios, banks park their funds in government securities which are highly liquid assets and have an average system level statutory liquidity ratio of over 23 per cent.

Elaborating on the comparatively lesser losses from the bond market, Joint Managing Director Deepak Gupta told PTI that 61 per cent of its holdings are in the AFS (available for sale) category and only 39 per cent are in the maturity segment. Which has helped the bank prevent a major hit.

Total income for the quarter rose to Rs 8,582.25 crore from Rs 8,062.81 crore, up from Rs 6,479.78 crore in the year-ago period to Rs 7,338.49 crore.

Net interest income (NII), the key profitability gauge, jumped 19 per cent to Rs 4,697 crore from Rs 3,942 crore, at a near-record net interest margin (NIM) of 4.92 per cent.

NIM is the difference between what a bank earns from lending after making payments to the depositors.
This higher margin comes even as the bank saw its low-cost CASA ratio (current and savings account ratio) fall by 200 bps to 58.2 per cent in the quarter.

On the asset quality front, gross non-performing assets declined from 3.56 per cent to 2.24 per cent, while net NPAs declined from 1.28 per cent to 0.62 per cent.

Provision for bad loans and contingencies declined manifold to Rs 23.6 crore in the quarter from Rs 934.8 crore in the year-ago quarter, and the provision coverage ratio stood at 72.6 per cent.

Advances rose 29 per cent to Rs 2,80,171 crore. About 77 percent of incremental lending in the quarter was unsecured, which are typically personal loans and credit cards and retail microfinance.

Mr Gupta said 77 per cent of loans being unsecured are neither sustainable nor healthy, but this is mainly due to low base and will eventually come down.

Mr. Gupta and Mr. Bhatt guided towards 20 percent credit growth for the year, with the caveat that if interest rates don’t go above the ceiling.

He also admitted that despite 29 per cent credit growth, his wholesale book is still not in the pink of health.

Among several subsidiaries, Kotak Mahindra Life Insurance reported a net income of Rs 243 crore to Rs 248 crore, Kotak Securities Rs 236 crore to Rs 219 crore, Kotak Mahindra Prime Rs 79 crore to Rs 157 crore, and Kotak Mahindra AMC. did a business of Rs 107 crore to Rs 106 crore.

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