Kotak Mahindra Bank Turns Cautious on New Lending, CEO Says

(Bloomberg) -- Kotak Mahindra Bank Ltd. is becoming more selective about handing out new loans, amid concerns about the impact of the coronavirus on Indian borrowers.

The bank will “very seriously” screen its lending and only approve loans that involve the “right risks,” Chief Executive Officer Uday Kotak said on a conference call, soon after the bank reported its profit fell by nearly 10% in the latest quarter.

Indian banks are bracing for a surge in bad debts as an economic lockdown triggers mass unemployment and leaves many companies facing bankruptcy. Bank shares rose Wednesday, a day after Prime Minister Narendra Modi said his government will spend 20 trillion rupees ($265 billion) to help the economy weather the fallout.

Kotak Mahindra Bank’s loan growth has already been slowing, dropping to 6.8% in the year to March from 21.2% a year earlier. That’s also below the double-digit growth reported by other large private sector lenders including HDFC Bank Ltd. and ICICI Bank Ltd.

“We will take a ball by ball approach. Each ball has to be played on its merit,” said Kotak, making an analogy with cricket, his favorite game.

Kotak Mahindra Bank’s profit fell to 12.7 billion rupees in the three months ended March 31 as it set aside 6.5 billion rupees for Covid-19, bringing total provisions to 10.5 billion rupees, up from 1.7 billion rupees a year ago.

The bank’s shares climbed as much as 5.5%, before ending 2.6% higher in Mumbai trading, even as profit missed the 15 billion rupee average of analyst forecasts.

“The extent to which Covid-19 will impact the bank’s operations and financial results is dependent on the future developments, which is highly uncertain,” it said in a filing.

Gross bad loans fell to 2.25% of total advances from 2.5% the previous quarter. Newly soured debts totaled 4.9 billion rupees, down from 10.6 billion rupees three months earlier.

The bank said that as of end-April, borrowers representing about 26% of its loan book tapped a repayment moratorium that the banking regulator has allowed during the crisis. The facility allows companies and individuals to hold off monthly repayments until the end of June.

The lender’s capital adequacy ratio was at 17.9% compared with 18.2% at the end of December, well above the minimum requirement of 10.875%.

“We will focus on spread, duration and credit risk while deploying our funds,” Kotak said on the conference call.

©2020 Bloomberg L.P.

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