Kotak Mahindra Bank Q2 Results: Net Profit Rises 23.5% On Higher Core Income

Kotak Mahindra Bank Ltd.'s second-quarter profit rose meeting analyst estimates on higher core income even as provisions jumped.

The private lender's standalone net profit rose 23.5% to Rs 3,190 crore in the quarter ended September, according to its exchange filing. Analysts polled by Bloomberg estimated a profit of Rs 3,278 crore for the quarter.

Sequentially, the standalone net profit fell 8%.

Standalone net interest income, or core income, for the bank rose 23.4% from a year earlier to Rs 6,296 crore. Other income rose 18.4% to Rs 2,314 crore.

In Q1, the bank had an exceptional income on account of some stressed assets and dividend from subsidiaries, said Jaimin Bhatt, group chief financial officer at Kotak Mahindra Bank, in the post earnings call.

The lender's consolidated net profit was up 23.6% to Rs 4,423 crore year-on-year. Consolidated NII rose 24% to Rs 8,181 crore year-on-year.

Asset quality for the lender improved with gross non-performing asset ratio falling 5 basis points sequentially to 1.72%, as of Sept. 30. Net NPA ratio also narrowed by 3 basis points quarter-on-quarter to 0.37%.

Slippages increased 9% quarter-on-quarter to Rs 1,314 crore. On a year-on-year basis, they rose 33.6%.

For slippages, the bank remains watchful on the unsecured retail side, according to Bhatt.

"The overall slippages are in check and the unsecured retail loans did contribute to it... Even the SMA-2 for Q2 has fallen," he said.

Provisions for the quarter jumped 167% from a year earlier to Rs 366.6 crore. The provision coverage ratio stood at 79.1% as compared with 73.7% a year earlier.

Current account-savings account ratio stood at 48.3%, down 7 basis points quarter-on-quarter from 49%.

The bank doesn't have any plans to raise savings deposit rates at this time even though it sees some pressure across the industry, particularly on large deposits and those from government business, according to Dipak Gupta, interim managing director and chief executive officer at Kotak Mahindra Bank in the media call.

The net interest margin stood at 5.52%, down 5 basis points quarter-on-quarter from 5.57%.

Going ahead, the bank expects NIM to be maintained around these levels, Gupta said.

Credit cost for the bank stood at 47 basis points annualised in the second quarter of FY24, down from 54 bps annualised a quarter earlier.

The lender's advances increased 21% to Rs 3,57,012 crore year-on-year as of Sept. 30. Unsecured retail advances, including microfinance portfolio, stood at 11% as a percentage of net advances as compared with 8.7% a year earlier.

On the unsecured retail advances front, Gupta said that there are some headwinds but the bank is comfortable.

"This also includes microfinance exposure; so, all put together, we still have some distance to go ahead," he said in the media call. "Delinquencies have moved up across banks but we also have to look at it from a risk adjusted returns view, and it looks good from there," he added.

Going ahead, the bank will also see Sonata Finance microfinance added to this section. Kotak Mahindra Bank received a nod from the Reserve Bank of India on Friday for its Rs 537-crore acquisition of microlender Sonata Finance.

Gupta added that the small-ticket loans segment is something to watch out for.

"It is not something that requires us to put the brakes or start panicking... I think the delinquencies are higher than last year but not at pre-Covid levels," he said.

The retail microfinance portfolio saw maximum growth of 80% year-on-year to Rs 7,987 crore. This was followed by growth of 59% to Rs 12,597 crore in credit cards. Personal, business and consumer durables loans grew 35% to Rs 17,862 crore.

The home loans and agriculture division saw slowest growth of 15% to Rs 99,100 crore and 8% to Rs 27.031 crore, respectively.

Tractor finance grew to Rs 14,376 crore, up 20% year-on-year and 3% quarter-on-quarter. On this, Gupta said that there is a need for some degree of caution but at this point, it is not alarming.

"Deficient monsoon can impact recoveries and there has been some degree of impact... Fresh sanctions also tend to get impacted," he said.

In terms of the vehicle finance portfolio, Gupta said that due to acquired portfolios' run down, one will see fall in growth. "But the core vehicle finance business is doing well," he said.

Kotak Mahindra Bank also received RBI's approval for the appointment of Ashok Vaswani as the next MD and CEO on Saturday. The appointment will come into effect by Jan. 1, 2024.

Gupta said that Vaswani is expected to move to India and join by December as currently, he is working somewhere else.