Kotak Mahindra Bank Rallies On Strong Third Quarter Performance
Kotak Mahindra Bank’s profit jumped 39%, while asset quality remained stable.
A sharper than anticipated improvement in net interest income, and an expansion in net interest margin pushed Kotak Mahindra Bank Ltd’s net profit for the quarter ended December higher by 38.6 percent to just under Rs 880 crore, surpassing analysts’ estimates.
The bank was expected to report a net profit of close to Rs 815 crore, according to consensus estimate of analysts tracked by Bloomberg.
Other income rose sharply too, by 26 percent to Rs 910.22 crore.
Net interest income, an indicator of the performance of the bank’s core business, rose 16.1 percent to Rs 2,050 crore. Net interest margin remained flat at 4.49 percent compared to 4.47 percent in the July to September quarter.
Asset growth had picked up momentum in October, it was in take-off mode, and then it was grounded on account of the demonetisation.Dipak Gupta, Joint Managing Director, Kotak Mahindra Bank
Kotak Mahindra Bank’s loans grew just over 12 percent year-on-year to Rs 1.29 lakh crore as on December 31. For the banking system as a whole, credit growth slowed to between 5 and 6 percent in the weeks following the government’s demonetisation of old Rs 500 and Rs 1,000 currency notes.
On a sequential basis, the bank’s loans grew 2.6 percent, led primarily by its corporate banking business, which grew 10 percent over the course of the quarter to Rs 42,578 crore.
“The improvement in the corporate book is largely on account of improved synergy with ING Vysya,” said Gupta at a press conference. “This was one of the first businesses that was worked on as part of the process. The retail business will soon start showing the benefits of the synergy.”
The bank had acquired ING Vysya Bank in the last quarter of 2014-15.
Kotak Mahindra Bank’s agricultural loans contracted 4.5 percent sequentially, while its business banking segment slowed by 4.2 percent, and its small banking, personal loan and credit card segment by 0.5 percent.
“Credit growth will continue to be tough, but consumer demand will come back this quarter,” said Gupta. “Some of the discretionary spending is coming back.”
Deposit Growth
Total deposits rose 14.1 percent year-on-year driven by the sharp 40 percent increase in savings and current account (CASA) deposits. On a sequential basis, deposits increased 5.9 percent on the back of the 25 percent rise in CASA deposits.
Savings account deposits rose 13.1 percent, and current account deposits rose 5.9 percent compared to the July to September quarter, taking the share of low-cost CASA deposits to 42 percent from 39 percent earlier.
Fee income grew 26.5 percent year-on-year and 15.1 percent sequentially.
Asset Quality Stable
Asset quality remained stable on a sequential basis. Gross non performing assets (NPAs) stood at 2.42 percent of total advances compared to 2.49 percent in the previous quarter. Net NPAs fell to 1.07 percent from 1.2 percent.
Loans outstanding under Special Mention Account-2 (SMA-2) dropped to 0.19 percent of net advances at Rs 242 crore as compared to 0.33 percent in the July to September quarter. Loans are classified as SMA-2 if principal or interest payment is overdue for 61-90 days.
- Provisions made for contingencies dropped 2.9 percent to Rs 192.1 crore.
- Restructured loans remained nearly unchanged on a sequential basis at Rs 146 crore.
- No loans were restructured under the 5/25 scheme or the strategic debt restructuring scheme.
- No accounts were transferred to asset reconstruction companies.
- Capital adequacy ratio stood at 17.6 percent as compared to 16.2 percent in the corresponding quarter last year.
- Tier-1 capital ratio rose to 16.5 percent.
Shares of Kotak Mahindra Bank ended the trading session at Rs 793.90, 6.8 percent higher than the previous close on the National Stock Exchange.