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Kotak Mahindra Bank Q1 Results: Profit Falls As Provisions Triple On Covid-19 Impact

Kotak Mahindra Bank increased it provisions to combat the Covid-19 impact on its asset quality.

Customers wearing protective masks approach a Kotak Mahindra Bank Ltd. branch on a near-empty street in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)
Customers wearing protective masks approach a Kotak Mahindra Bank Ltd. branch on a near-empty street in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Kotak Mahindra Bank Ltd.’s quarterly profit fell as the private lender increased provisioning to mitigate the potential impact of the Covid-19 pandemic.

The bank’s profit declined 8.51% year-on-year to Rs 1,244.5 crore in the three months ended June, according to its exchange filing. That compares with the Rs 1,821.5 crore consensus estimate of analysts tracked by Bloomberg.

Its net interest income, or core income, rose 17.8% to Rs 3,723.9 crore, against the estimated Rs 2,936.8 crore.

Asset quality deteriorated in the first quarter of financial year 2020-21. Its gross bad loan ratio rose to 2.7% from 2.25% in the quarter ended March, while net NPA ratio increased to 0.87% from 0.71%.

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Kotak Mahindra Bank’s provisions more than tripled year-on-year to Rs 962 crore as it set aside funds anticipating bad loans stemming from Covid-19 lockdown. In the previous quarter, the bank had made a Covid-19-related general provision of Rs 650 crore, higher than the Reserve Bank of India's requirement.

Total loans under phase-2 moratorium stood at 9.65% as of June 30, down from 26% under the phase 1 as of April 30.

Jaimin Bhatt, group president and chief financial officer, said while the bank’s net interest margin fell this quarter compared to year-ago period, total net interest income grew as a result of significant investments in treasury operations.

“While the advances book has been slower this quarter, we have invested more in treasury operations, so the earning investments have gone up in the quarter,” Bhatt said. “Today, advances contribute 60% of earning investments compared to over 70% last year.”

Kotak Mahindra Bank 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 had said on a conference call in May.

Overall loan disbursements contracted by 2% to Rs 2.03 lakh crore as on June compared with Rs 2.08 lakh crore a year ago.

“At this stage, the demand for credit is weak and we would like to wait and watch and it depends on how the scenario pans out,” Dipak Gupta, the lender’s joint managing director, said on Monday. “There’s still no visibility on when the pandemic will peak which is why we have decided to go slow on credit growth.”

Gupta said growth in the credit card segment has been slow due to a conscious decision by the bank and lower demand from customers. Credit card spends, he said, have been subdued in the last few months and are at 70-75% of normal levels.

The bank disbursed around Rs 4,000 crore till the end of July, under the emergency credit line guarantee scheme, announced by the government as part of its Covid-19 relief package.

However, Gupta said SMEs are hesitant to take on new loans as they don’t expect demand to revive.

“The better SMEs don’t want the money and they’re hesitant to take money as they aren’t seeing a growth in demand,” he said. “If we could have lent Rs 10,000 crore we think around 50-60% will be taken. Utilisation of existing working capital lines have been low during this period due to lower requirement and demand.”

Other Highlights

  • Net interest margin stood at 4.4% compared with 4.48% in the comparable quarter.
  • CASA deposits stood at 56.7% in June compared with 50.7% a year ago.
  • Total slippages at Rs 796 crore this quarter against Rs 491 in the preceding quarter and Rs 751 in the year-ago period.

Shares of Kotak Mahindra Bank pared all gains to fall as much as 2% after the results were announced. That compares with a 0.3% drop in the benchmark Nifty 50 Index.