Kotak Mahindra Bank Q1 Results: Profit Up 81% On Stake Sale, Appoints External Auditor After RBI Curbs

Kotak Mahindra Bank Ltd.'s first-quarter profit rose, beating analysts' estimates with an one-time gain from offloading stake in its unit—Kotak General Insurance.

The bank has a one-time gain from divestment of 70% stake in general insurance arm at Rs 3,512 crore and shown as an exceptional item. The bank continues to hold remaining 30% of the share capital of the company as of June.

The private lender's standalone net profit rose 81% year-on-year to Rs 6,249 crore in the three months ended June, according to an exchange filing on Saturday. Analysts polled by Bloomberg projected the botttom line at Rs 3,760.2 crore. Sequentially, the profit was up 39.5%.

Net interest income, or the lender's core income, rose 9.7% year-on-year to Rs 6,843 crore in April-June period. Other income rose 9.1% year-on-year to Rs 2,929 crore.

Provisions for the quarter rose 58.7% year-on-year to Rs 578.4 crore. Asset quality for the lender stayed flat with gross non-performing asset ratio at 1.39% sequentially. Net NPA too, stayed flat at 0.35%, compared to 0.34% in the previous quarter.

The lender witnessed increased provisioning for credit cards and personal loans, particularly low-ticket loans, due to emerging signs of delinquencies in some states, Kotak Mahindra Bank's Group Chief Financial Officer Devang Gheewalla said in a media call after the earnings.

Net interest margin, a profitability indicator, squeezed to 5.02%, compared to 5.28% in the previous quarter.

Kotak Kotak Mahindra Bank's Chief Financial Officer Devang Gheewalla attributed it to the RBI curbs. "RBI's IT embargo had an impact on high-yield book," Gheewalla said, adding that the bank also had some liquidity at the start of the quarter which got deployed in the first quarter of the ongoing financial year.

"...continued challenges in the low-cost deposits have put pressure on cost of funds," Gheewalla added.

Besides, the lender has appointed Grant Thornton Bharat as its external auditor after discussing a plan with RBI in order to recover from the restrictions, its Chief Executive Ashok Vaswani said in a media call.

Vaswani said that the lender has submitted some timelines to the regulator about the process, adding that the bank has made significant progress on the tech side and also deployed resources from Accenture, Oracle and Infosys to work towards coming out of these curbs.

Commenting on mule account frauds, Vaswani said that the issue has been taken seriously by banks and more instances of them are being seen in current accounts.

"...have built sophisticated models that track such transactions," he said.

The bank has also implemented RBI's master directions on classification, valuation and operation of investment portfolio of commercial banks, according to its statement. Due to this, the lender had a fair value gain of Rs 3,414 crore after tax, accounted for reserves at June 30, 2024.

The lender's advances increased 20% year-on-year to Rs 4.05 lakh crore. Here, customer assets, which comprise advances and credit substitutes increased 20% year-on-year to Rs 3.62 lakh crore.

Unsecured retail advances as a percent of net advances stood at 11.6% for the quarter ended June.

The unsecured retail business is still in mid-teens level from an appetite perspective and the bank will continue to focus on current account, savings account, term deposits & ActivMoney, the bank's Deputy Managing Director Shanti Ekambaram.

Kotak Mahindra Bank's average total deposits grew 21% year-on-year to Rs 4.35 lakh crore. Here, the average current deposits stood at Rs 62,200 crore, up 5% year-on-year and average term deposits increased 38% year-on-year to Rs 2.51 lakh crore.

The capital adequacy ratio of the Bank stood at 22.4% for the quarter ended June and CET1 ratio at 21.3%.

The current account and savings account ratio of the bank stood at 43.4% in the quarter, while the lender's annualised credit costs stood at 0.55% in the first quarter, compared to 0.42% in the preceding quarter.