Kotak Mahindra Bank on Wednesday reported a 32% rise in net profit
for the quarter ended 31 March on account of a rise in net interest
income and a largely stable asset quality. Net profit rose to Rs.695.78 crore from Rs.527.14 crore a year ago.
The bank said that results for the quarter and the fiscal year
cannot be compared with previous periods because of the merger of ING
Vysya Bank on 1 April 2015.
NII, or the difference between interest earned on loans and paid on deposits, for the quarter stood at Rs.1,857.24 crore, an increase of 65% from Rs.1,123.17
crore a year ago. The increase in NII was primarily due to the merger
of ING Vysya Bank with Kotak Mahindra Bank, which became effective 1
April 2015.
NII rose 5.15% from Rs.1,766 crore in the preceding quarter.
Total advances as on 31 March rose 79% to Rs.1.19 trillion from Rs.66,161
crore a year ago. It rose by nearly 3% on a quarter-on-quarter basis.
Uday Kotak, executive vice-chairman and managing director, said the
lender is targeting 20% growth in advances for the current fiscal year
and hopes to get the growth in both corporate and retail book.
“At this stage, we are very focused on wherever we get returns for
the risk and we are not necessarily aligned to say retail is good and
wholesale is bad. Roughly, we think we would like it to be 50-55% of
above Rs.5 crore loans and around 50% for below Rs.5 crore,” he said.
Kotak added that commercial vehicle space has improved and the bank is seeing demand from mid-sized and small firms.
Deposits rose to Rs.1.39 trillion during the quarter, an increase of 85% from a year earlier and up 6% from the preceding quarter.
Other income stood at Rs.682 crore, higher than Rs.668
crore reported in the previous year. Net interest margin (NIM) declined
to 4.35% in the January-March period as compared with 4.76% a year ago.
In the October-December period, NIM was at 4.4%.
The bank’s asset quality for the quarter fell marginally as gross
non-performing asset (NPA) ratio for the January-March period was at
2.36%, compared with 2.3% in the previous quarter. The bank had reported
a gross NPA ratio of 1.85% in January-March 2015.
Provisions for bad loans fell to Rs.200 crore as compared with Rs.232.25 crore in the quarter ended 31 December.
During the merger with ING Vysya Bank, Kotak Mahindra Bank carved out
a ‘bad bank’ that housed stressed assets of the loan book, which was 6%
of ING Vysya’s total loan book.
Kotak on Wednesday said that recovery in stressed assets is slower
than expected. “Once a loan gets into problems, the recovery process is
much longer than earlier. It is not happening as fast as one would like
it to be,” he said.
Long legal processes and the subdued economic environment is making
recovery difficult, said Dipak Gupta, deputy managing director of the
bank.
Kotak also indicated that the NPA cycle may not have peaked yet and
more stress could emerge. “The RBI’s (Reserve Bank of India) AQR (asset
quality review) is a subset of the stress in the system. AQR was not the
end,” he said.
The RBI conducted its AQR in December and asked banks to provide
against stressed accounts. Following this, most public sector banks and
even some private lenders posted a sharp drop in their quarterly profits
and a rise in provisions.
The bank said that accounts that are overdue by more than 60 days
in its book, also termed special mention accounts (SMA-2), totalled Rs.153 crore as of 31 March. The bank did not participate in any corporate debt restructuring or 5/25 scheme in fiscal 2016, Kotak said.
The bank will target a sharply lower credit cost of 45-50
basis points for the current fiscal, compared with credit cost of 82 bps
for fiscal 2016, Kotak said. One basis point is one-hundredth of a
percentage point.
“Their credit cost has dropped, which would be positive for future
growth. They announced their SMA-2 numbers during the results. However,
that doesn’t seem to be impacting earnings much. The management has
guided 20% (credit) growth, which is lower than analysts estimates. If
they beat it, that would be the next trigger for the stock,” said an
analyst from Reliance Securities.
On Wednesday, shares of Kotak Mahindra Bank rose 1.34% to Rs.731.15 on the BSE, while the exchange’s benchmark Sensex shed 0.68% to 25,597.02 points.
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