Kotak Mahindra Bank’s Q2 results: Net profit falls short of estimate, NPAs rise due to RBI ban

Mumbai: Kotak Mahindra Bank reported a 5% year-on-year rise in standalone profit for the quarter ended September 2024 from Rs. 3,191 crore, which was an 11% increase in net interest income even as margins declined and provisions for non-performing assets increased. A poll of analysts by Bloomberg expected Rs. The profit of the bank was less than 3424 crores.

Profits were helped by an 11% growth in net interest income (NII), or the difference between interest earned on loans and the difference paid for deposits, which rose to Rs 17% in advances through September 2024. 4.19 lakh crores.

CEO Ashok Vaswani said the bank has seen a slight slowdown in rural banking, commercial vehicle, microfinance and consumer lending businesses but hoped that these businesses would bounce back from the festive season later this month.

The Reserve Bank of India on April 24 banned the bank from onboarding new customers to its online and mobile banking channels and issuance of new credit cards continued to affect the number of unsecured retail advances as the percentage of net advances fell to 11.3% from 11.6%. was done years earlier.

However it will be allowed to provide these services to its existing customers. Vaswani said the bank is “working hard” to fulfill its commitments to the RBI.

Slower growth in the high-yielding consumer finance business also weighed on Kotak’s margins. 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.

Group chief financial officer Dewang Ghiwala said the yield decline was due to consumer loans replacing lower-yielding secured loans such as housing and loans to small and commercial enterprises.

A slowdown in consumer loans has also forced banks to look for innovative ways to continue growth. On Friday, Kotak said it has received from Standard Chartered Rs. 4100 crore will buy personal loans.

Vaswani said the purchase is in line with the bank’s strategy on acquisitions. “It gives us 95,000 affluent customers with whom we can develop relationships in the future. The typical maturity for these loans is four years out of which 2 to 2.5 years have matured. We will look to do more such transactions,” Vaswani said. .

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

The bank’s gross NPAs rose to 1.49% of total loans from 1.39% a year ago due to decline in unsecured loans such as credit cards and microfinance. In September 2024, fresh slippage increased by 38% to Rs. 1875 crore which in the quarter ended June 2024 was Rs. 1358 crores.

Ghiwala said that 30% to 40% of the slippage comes from the credit card business.

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

The rise in NPAs led to a 14% increase in provisions compared to June which stood at Rs. 578 crore to Rs. 660 crore, which affected the profit.

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

Manish Chowdhury, head of research at StocksBox, said the significant contraction in NIM is a matter of concern for banks.

“The contraction is due to an increase in the high cost of deposits, an industry-wide trend to which Kotak Mahindra Bank is not immune. The growing reliance on these high-cost deposits is squeezing margins, posing a challenging scenario for the bank,” Chaudhary said. said in the comments after the result.