Kotak Mahindra Bank Drops After Bad Loans Surprise Investors

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Shares of Kotak Mahindra Bank Ltd. dropped after investors expressed concerns over the level of bad loans held by India’s third-largest lender by market value.

The bank’s gross bad loan ratio narrowed to 2.26% at the end of December from 2.55% three months earlier, but this ratio would have been 3.27% if India’s court hadn’t barred financiers from marking soured assets, it said in a filing on Monday. A “disproportionate portion” of the additional problem loans, including those that haven’t been marked as bad debt, are in unsecured consumer retail, it said.

Shares dropped as much as 2.9%, the most in almost two months, after the results were published. The Bankex Index fell as much as 0.6%.

“Bad loans, including those that haven’t been labeled due to a court order, have caught investors by surprise,” said Pritesh Bumb, an analyst at Prabhudas Lilladher Pvt. “Higher non-performing assets than some peers is leading to the stock market reaction.”

Kotak Mahindra, backed by world’s richest banker Uday Kotak, has been impacted after a nationwide lockdown to contain the coronavirus pandemic forced businesses to close, impacting demand for credit and borrowers’ ability to repay. India’s central bank expects banks’ bad-loan ratios to almost double this year.

Net income totaled 18.5 billion rupees ($254 million) for the three months ended Dec. 31, compared with 16 billion rupees a year earlier, the Mumbai-based bank said. Analysts had expected a profit of 17 billion rupees, according to the data compiled by Bloomberg.

“If I look at the overall gross non-performing assets we have and look at our overall provisions, we’re pretty much covered,” said Jaimin Bhatt, group chief financial officer at Kotak Mahindra Bank. “The unsecured pieces are showing some signs of taking time to come back. It’s still trickling in.”

Key Numbers
Income on investments 18.0 billion rupees versus 13.2 billion rupees year earlier
Capital adequacy ratio at 21.54% compared to 18.2% in the previous year
Provisions at 6 billion rupees versus 4.4 billion rupees a year earlier

Earlier this month, HDFC Bank Ltd., India’s largest private lender by assets, said its gross non-performing asset ratio would have been 1.38% without the relaxation of rules regarding the recognition for bad debt.

©2021 Bloomberg L.P.

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