Profit was helped by a 11% growth in net interest income (NII), or the difference between the interest earned on loans and that paid for deposits, led by a 17% growth in advances to Rs 4.19 lakh crore as at September 2024.
CEO Ashok Vaswani said the bank has seen some slowdown in rural banking, commercial vehicle, microfinance and consumer lending businesses but expressed hope that these businesses will bounce back starting with the festive season later this month.
The Reserve Bank of India’s April 24 ban on the bank from onboarding new customers on its online and mobile banking channels, and issuing fresh credit cards continued to impact numbers as unsecured retail advances as a percentage of net advances fell to 11.3% from 11.6% a year earlier.
It would however be allowed to provide these services to its existing customers. Vaswani said the bank is “working hard” to fulfill its commitments to RBI.
The slower growth in the high yielding consumer finance businesses also impacted Kotak’s margins. Net interest margin (NIM) or the difference between the yield earned on loans and interest paid on deposits fell to 4.91% in September 2024 from 5.22% a year ago.Devang Gheewalla, group chief financial officer said yields have fallen as consumer loans have replaced the lower yielding secured loans like housing and loans to small and business enterprises. The slowdown in consumer loans has also forced the bank to find innovative ways to keep growth going. On Friday, Kotak said it will buy Rs 4100 crore personal loans from Standard Chartered.
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 has been completed. We will look to do more of such transactions,” Vaswani said.
He said the bank continues to have ambitions of growing unsecured loans in mid teens. About 50% of the bank’s consumer loans are unsecured personal loans.
The bank’s gross NPAs increased to 1.49% of total loans from 1.39% a year ago led by slippages in unsecured loans like credit cards and micro finance. Fresh slippages increased 38% to Rs 1875 crore in September 2024 from Rs 1358 crore in the quarter ended June 2024.
Gheewalla said that 30% to 40% of slippages came from the credit card business.
“We are seeing some stress in the unsecured business but it is in line with the market. This is also at a time when the book is not growing due to the RBI action,” Gheewalla said.
The rise in NPAs also led to a 14% rise in provisions compared to June at Rs 660 crore from Rs 578 crore, impacting profit.
Among the subsidiairies, Kotak Securities reported a 37% rise in net profit to Rs 444 crore at the end of September 2024 while Kotak Mahindra Life reported a 46% growth in net profit to Rs 360 crore.
Manish Chowdhury, head of reasearch at Stoxbox said the significant compression in NIMs is a concern for the bank.
“This compression is due to the rise in high-cost of deposits, an industry-wide trend that Kotak Mahindra Bank hasn’t been immune to. The increasing reliance on these high-cost deposits is squeezing margins, creating a challenging scenario for the bank,” Chowdhury said in a post result comment.
