Kotak Bank Q2 Preview: NIM Decline, Rising Cost Ratios Likely To Impact Profits

Kotak Mahindra Bank Ltd. is expected to deliver a lacklustre performance for the quarter ended September as net interest margins continue to decline amid a rise in cost ratios, according to eight brokerages assessed by NDTV Profit.

Bloomberg's poll estimates the bank's profit after tax to be Rs 3,414 crore.

Analysts said that the private sector bank could report a 7% year-on-year rise in net profit due to healthy growth in net interest income, stable asset quality, and credit costs. But higher operating expenses and lower other income would weigh on the bottom line sequentially, according to Prabhudas Lilladher.

A sharp fall in net profit on a sequential basis could also be due to the absence of one-off gains from Kotak General Insurance, said Emkay Global Financial Services.

The private sector bank is expected to report its July-September earnings results on Saturday. At 2 p.m., shares of the bank were 0.28% higher at Rs 1,869.10 apiece.

Analysts expect pressure on margins for Kotak Mahindra Bank to persist, with contraction of 3–10 basis points per quarter because of a decrease in loan yields and a rise in the cost of funds.

As of June 30, NIMs were 5.02% against 5.28% a quarter ago and 5.57% a year ago.

Additionally, cost ratios are likely to inch up marginally on quarter, and pre-provisioning operating profit will be muted, Axis Securities said in an earnings preview.

“Business growth momentum is expected to remain healthy, and growth in the unsecured portfolio is likely to continue,” the brokerage said.

Overall, the cost-to-income ratio is expected to rise in the July-September period, given the increased investment in physical branches of the bank, analysts said.

Dolat Capital expects the bank's loan growth to increase by 3% on quarter and 16% on year, and slippages to remain contained at 1.6%.

However, Emkay Global expects slippages to remain elevated due to rising stress in unsecured retail loans, including personal loans, credit cards, and microfinance institutions.

Overall, asset quality is expected to improve, with the gross non-performing assets ratio falling by 2 bps on quarter and credit costs declining by 5 bps, Prabhudas Lilladher said.

The management's commentary on margins, growth outlook, especially the growth trajectory in the unsecured book, and timelines of RBI's ban removal from digital onboarding of new customers will be keenly watched out for.