Kotak Mahindra Bank Q4 standalone net jumps 40 percent, but asset quality deteriorates

Image: Danish Siddiqui / Reuters

Kotak Mahindra Bank, India’s fourth largest private lender by branch network, beat market analysts’ expectations as it reported a 40.34 percent rise in standalone net profit at Rs 976.48 crore for the three months ended March 31, 2017, from Rs 695.78 crore a year ago.

Net interest income, or the difference between interest earned and interest expended, rose 16.3 percent to Rs 2,161 crore in the fourth quarter of FY17.

But the bank’s asset quality deteriorated. Gross non-performing assets (as a percentage of gross advances) were at 2.59 percent, against 2.36 percent for the corresponding quarter last fiscal. Net NPAs stood at 1.26 percent, compared with 1.06 percent for the January to March 2016 quarter.

In absolute terms, GNPAs for the bank were Rs 3,578.61 crore in Q4, against Rs 2,838.11 crore a year earlier and net NPAs stood at Rs 1,718.07 crore, against Rs 1,261.96 crore a year ago.

This comes as a dampener for the retail-focussed bank, which has been keen to expand in both organic and inorganic ways. In February this year, the bank’s executive vice chairman and managing director Uday Kotak had urged the government to create an atmosphere which would boost hostile takeovers. The statement came at a time when Kotak Mahindra Bank was, according to media reports, one of the several suitors to pick up a stake in private sector peer Axis Bank. Kotak Mahindra Bank, Axis Bank and other banks have officially denied any such move.

“I would love to see the mergers and acquisitions (M&A) market in India develop further,” Kotak had said at the time. He added that it was time for some hostile takeovers.“We have not seen them for a long-time in this country.” He was speaking in a panel discussion at The Growth Net event.

Announcing the results,Uday Kotak in a press statement said, “During the year, we completed the integration process [of Vysya Bank]. Subsequently, November 8, 2016 [when the government announced its demonetisation drive] has been a game changer for a digital new India and formalisation of financial savings.Both these have significant long term impact on financial services and strengthen our core proposition of Concentrated India Diversified Financials.”

Last month, the bank announced the launch of 811—a digital, paperless savings account which allows customers to transact digitally and avail of other banking services relating to loans and investments. This is a zero balance account, which can be opened digitally in about five minutes and reduces the need for a payments bank account.

Transactions on all the digital banking channels saw growth in terms of both volumes and value. On Thursday, an investor presentation showed that in Q4 FY17 monthly transactions through mobile phones rose 38 percent in value terms sequentially. The volume of digital transactions soared 138 percent from a year ago.

Kotak Mahindra Bank has a network of 1,369 full-fledged branches and 2,163 ATMs across the country.

Alpesh Mehta, banking analyst at Motilal Oswal Securities said that Kotak Mahindra Bank reported an "overall strong set of numbers in the challenging environment." The bank saw loan growth of 15 percent (largely retail) and net interest margin improvement of 10 basis points year-on-year led to 16 percent year-on-year growth in net interest income, Mehta said.

"We are also impressed by strong savings account growth of 40 percent year-on-year and a sharp rise in domestic equity assets under management to over Rs 280 billion, against Rs 186 billion in the sequential quarter.

On Thursday, the stock closed up 1.58 percent at Rs 914.55 on BSE, after the earnings data.So far, for the fourth quarter of FY17, earnings from Indian banks have been mixed, with some like HDFC Bank reporting higher profit and net interest income. Other private lenders IndusInd Bank and Yes Bank too reported healthy profit growth but were impacted by higher provision for bad loans.

But with credit growth in the system still weak, most banks are likely to continue to see a pressure on their earnings, particularly on their margins, in the coming quarters.