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Kotak Mahindra Bank reports 26% growth in Q1 profit at Rs 2,071 crore on lower provisions – Moneycontrol

Kotak Mahindra Bank

Private sector lender Kotak Mahindra Bank on July 22 reported a 26 percent year-on-year growth in standalone net profit at Rs 2,071 crore for the quarter ended June 2022, supported by lower provisions, with improvement in asset quality performance.

A Moneycontrol poll of seven brokerages showed that the net profit was expected to rise 32 percent to Rs 2,176 crore.

Provisions and contingencies declined by a massive 97 percent year-on-year  to Rs 23.59 crore at the end of June quarter compared to Rs 703.52 crore in the corresponding quarter of previous fiscal.

The fall in provisions stems from the improvement in asset quality metrics.  During the quarter, the bank wrote back Rs 65 crore worth of provisions it had made specifically towards pandemic related risks. Gross non-performing assets as a percentage of gross advances fell by 10 bps sequentially to 2.24 percent and net NPAs declined by 2 bps to 0.62 percent in Q1FY23.  Gross bad loans a year ago were 3.58 percent of the loan book.

Incremental stress has also remained low for the bank. Fresh slippages totaled Rs 654 crore on a net basis compared with 736 crore the previous quarter. What’s more is that the bank was able to make higher recoveries and upgrades as well. These rose to Rs 1295 crore for the June quarter compared with Rs 897 crore in the preceding quarter.

Also read – Kotak Mahindra Bank reports 26% growth in Q1 profit at Rs 2,071 crore on lower provisions

The bank’s core interest income also showed healthy traction.

Net interest income, which is a difference between interest earned and interest expended, grew by 19.16 percent to Rs 4,697 crore compared to same period last year, with 29 percent YoY growth in loan book.

Surprisingly, loan growth was driven by unsecured personal loans, credit cards, consumer durable loans and business loans, both on a year-on-year basis and sequentially. Kotak Mahindra Bank has been a conservative lender in the past but it seems to have shed this for the June quarter.

Credit cards expanded 77 percent from a year ago and showed the highest sequential growth of 22 percent among loan categories. Personal loans, business loans and consumer durables showed a year-on-year growth of 77 percent and healthy sequential expansion of 15 percent. The share of unsecured retail advances has increased to 7.9 percent from 5.6 percent a year back. The bank’s corporate loan book also showed a growth after contracting in the previous quarter.

An expansion of net interest margin to 4.92 percent also helped support core interest income. NIM was supported by healthy low cost deposit pile as current account and savings account (CASA) formed 58 percent of total deposits.  That said, CASA growth was a modest 8 percent.

While the bank delivered on asset quality and core income as per street expectations, its operating performance fell short. Operating profit was down 16.6  percent from a year ago to Rs 2,783 crore, weighed by high operating expenses and a mark-to-market hit on the bank’s investment portfolio. These two overshadowed the strong core interest income growth during the quarter for the bank.

Kotak Mahindra Bank reported a mark-to-market hit of Rs 857 crore for the June quarter. This dragged non-interest income down 31 percent despite resilient fee income growth.

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Kotak Mahindra Bank said its consolidated profit for the June 2022 quarter grew by 52.5 percent YoY to Rs 2,755.4 crore driven by bank, and life insurance businesses, but consolidated total income fell by 7.3 percent to Rs 11,659 crore compared to year-ago period.