Kotak Mahindra Bank Q4 Results: Profit Falls 10% As It Prepares For Covid-19 Impact

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

The bank’s net profit declined 10 percent year-on-year to Rs 1,266.6 crore in the quarter ended March, according to an exchange filing. That compares with the Rs 1,514.7-crore consensus estimate of analysts tracked by Bloomberg.

But its net interest income, or core income from operations, increased 17.25 percent to Rs 3,560 crore. That’s against the Rs 3,478-crore forecast. Net interest margin stood at 4.72 percent.

• Deposit base grew 16 percent year-on-year to Rs 2.62 lakh crore during the full financial year ended March 2020
• Current and savings account ratio grew to 56.2 percent as of March 2020 from 52.5 percent a year ago.

With 86 percent of CASA and term deposits below Rs 5 crore, the bank’s deposit franchise is granular and sustainable over the long term, Uday Kotak, chief executive officer at Kotak Mahindra Bank, said in a post-earnings interaction.

“The real sector is obviously going through a pain, which will have an impact on the financial sector. Our focus in the after-corona world is on the strength of the balance sheet, a strong deposit franchise and given that unsecured retail lending will be under stress, lending in this environment will go through more scrutiny,” he said. “We need to be clear on lending to the right sector, focus on companies fixed costs and the level of leverage it is carrying.”

The bank’s total loan advances rose 7 percent over the last year to Rs 2.19 lakh crore in fourth quarter ended March. Around 26 percent of its borrowers, in value terms, availed moratorium as of April 30, the bank said.

The private lender, Kotak said, would be cautious and careful on lending to specific areas like unsecured retail and sectors like tourism, hospitality and retail malls, for instance, that are more likely to be impacted in the post-Covid world.

According to him, the bank is open to lending as it’s sitting on significant amount of liquidity, but it depends on which sectors and areas will get a relief under the government’s Rs 20-lakh-crore stimulus package.

Weak Credit Demand

While the bank will be cautious in lending, credit demand is weak amid the pandemic.

“Credit demand is very slow at this point because of lack of economic activity. Many customers on working capital side have significantly lower draw downs, while consumer lending demand was nil in April,” said Gaurang Shah, whole-time Director and president, Kotak Mahindra Bank. “When economic activity reaches near normalcy, that is when credit demand will pick up.”

Real Estate

Both residential and commercial developers will face uncertainty for the next six to 12 months, according to KVS Manian, whole-time director and group president at Kotak Mahindra Bank.

“On the residential side, lack of consumer confidence, demand will remain slow and patchy. The last few years saw commercial side grow reasonably well but with social distancing there are questions on the future of retail spaces, commercial offices and malls,” he said.

Polarisation In NBFCs

About non-bank lenders to which Kotak Mahindra Bank has an exposure of around Rs 11,300 crore, Manian said it was clear the sector was getting more polarised with strong NBFCs getting stronger and smaller players not being able to raise finance.

“This is an area where there probably needs to be more focus by the government and regulator so that medium-sized NBFCs are safeguarded,” he said.

Asset Quality

The private bank’s asset quality improved in the last quarter of the financial year ended March 2020. Its gross bad loan ratio contracted to 2.16 percent from 2.33 percent in the quarter ended December, while net NPA ratio fell to 0.7 percent from 0.87 percent.

Kotak Mahindra Bank’s provisions jumped six-fold year-on-year to Rs 1,047.5 crore as it safeguarded against bad loans at a time economic activity stalled amid the novel virus outbreak and the consequential lockdown to tackle it. The bank made a Covid-19 related general provision of Rs 650 crore, higher than the RBI’s requirement, it said in a statement.

“We did a simple approach of overdue accounts as on March 1 and made provisions for those who have opted for moratorium,” said Jaimin Bhatt, group president and group chief financial officer at Kotak Mahindra Bank. “We took an aggregate amount at the aggregate level and made a 10 percent provision. If the cut-off was moved to March 31 instead, the provision number would be significantly lower.”

As on March 31, 2020, the bank’s capital adequacy ratio as per Basel III stood at 17.9 percent and tier-I ratio at 17.3 percent.

Shares of Kotak Mahindra Bank pared opening gains to trade 3.5 percent higher after the earnings were announced. The stock still outperformed the Nifty 50 Index, which was up 2 percent, and was in line with the Nifty Bank Index’s 4 percent gain.