Kotak Mahindra Bank Q1 Results: Net Profit Drops 47% As Declining Asset Quality Weighs, Misses Estimates

Kotak Mahindra Bank Q1 Results: Deterioration in asset quality and muted profitability led Kotak Mahindra Bank to report a standalone net profit of Rs 3,282 crore, missing expectations of Rs 3,496.76 crore, tracked by Bloomberg.

On a year-on-year basis, the bottomline was 47% lower, on account of one time gains last year. Adjusting for these gains still, net profit is down 7% year-on-year for the bank. In the March quarter, net profit was at Rs 3,552 crore.

Provisions and contingencies of the bank jumped two-fold on year to Rs 1,208 crore. In the March quarter, it was at Rs 909 crore. The rise in provisions was because of stress in retail commercial vehicle and microfinance institution business.

"The reason behind stress in CV loans is not particularly because of overleveraging of borrowers but because of general slowdown in economic activity, movements of goods and payments." Deputy Managing Director Shanti Ekambaram said in post earnings concall.

Asset quality of the bank worsened, with gross non-performing assets ratio rising to 1.48% at the end of June as compared to 1.42% in the prior quarter. Net NPA also rose to 0.34% from 0.31% in the March quarter.

Fresh slippages rose to Rs 1,812 crore in the June quarter from Rs 1,488 crore in Jan-Mar. Fresh slippages that were upgraded within same quarter were at Rs 155 crore, higher than Rs 135 crore in the prior quarter.

Recoveries and upgrades stood at Rs 549 crore from Rs 747 crore a quarter ago. Credit costs on an annual basis, increased to 0.93% from 0.64% a quarter ago.

"Credit costs in MFI business have peaked and credit card business has plateaued but still witnessing some stress in retail unsecured business," MD Ashok Vaswani said in the earnings concall.

The private sector bank's net interest income came in at Rs 7,259 crore, up 6% on year. In the quarter ended March, NII was at Rs 7,284 crore. Consequently, net interest margins also weighed on the bank's earnings. The bank's NIM was at 4.65%, lower than 4.97% a quarter ago.

For the quarter ended June, the bank's loan book grew 14% on year to Rs 4.44 lakh crore. Of this, unsecured retail advances including retail microcredit was 9.7%.

"We have seen stabilization in Karnataka from what it was in January and March. We have cautiously started disbursements across the franchise including Tamil Nadu, Karnataka, Gujarat, Bihar and Uttar Pradesh,” Ekambaram said.

Currently, MFI disbursements have started picking up cautiously and business should rebound in the second half of the current financial year.`Credit card loan book declined 12% on year and 4% on year to Rs 12,924 crore.

The slowdown in the bank's credit card business is because the Reserve Bank of India had placed on embargo which was lifted earlier this year. Answering to a query, Vaswani said that the credit card business is still in a rebuilding phase and that the private sector bank is launching new card products such as Solitare, but growth is expected to be gradual.

Among customer assets, the consumer segment, which contributes the most, rose 16% on year to Rs 2.16 lakh crore, followed by wholesale at 13% to Rs 1.37 lakh crore and commercial rising at 5% to Rs 97,362 crore.

The small-medium enterprises book of the bank grew 23% on-year to Rs 34,783 crore in the June quarter. Total average deposits grew to Rs 4.91 lakh crore, up 13% on year. The current account-savings account ratio was 40.9% at the end of June against 43.0% a quarter ago and 43.4% a year ago.