Kotak Mahindra Bank Q1 Profit Drops; CV Stress Highlighted

Mumbai, Jul 26 (PTI) Kotak Mahindra Bank on Saturday reported a consolidated net profit of Rs 4,472 crore for the June quarter, and flagged stress on the retail commercial vehicle portfolio due to adverse macroeconomic conditions.

The consolidated net profit in the year-ago period was Rs 7,448 crore, but it had included gains of over Rs 3,000 crore on its stake sale in the general insurance arm, while the net profit for the March quarter stood at Rs 4,933 crore.

On a standalone basis, the private sector lender's net profit dropped 7 per cent year-on-year to Rs 3,282 crore, which was attributed to reverses on the core income front due to rate cuts by the RBI, slower growth in fee income and also higher provisions.

The core net interest income grew 6 per cent to Rs 7,259 crore on the back of a 14 per cent loan growth, but restricted by a 0.37 per cent narrowing in the net interest margin to 4.65 per cent.

The bank's chief financial officer Devang Gheewala said over 60 per cent of the assets are linked to the repo rate, which gets repriced with every policy rate cut, while the decrease in cost of funds is taking longer as the deposit base takes longer to reprice.

The other income grew by a slower 5 per cent to Rs 3,080 crore, and Gheewala said it will rise once the bank comes out of the RBI-imposed embargo, ups the pace of 811 account openings and credit card business.

The overall provisions on advances more than doubled to Rs 1,200 crore, and a major part of it was due to money set aside on reverses the bank sees in the microfinance portfolio, which has been bothering for some quarters now, and also retail commercial vehicles.

The bank's managing director and chief executive Ashok Vaswani said it has cautiously started disbursing MFI loans, and the pace of disbursements will go up in the second half of the fiscal, which will help it show growth in the book as well.

"The provisions for MFI business have peaked," he added.

Fresh slippages increased to Rs 1,812 crore from Rs 1,358 crore in the year-ago period, while the gross non-performing assets ratio increased to 1.48 per cent from 1.39 per cent.

Gheewala said nearly 35 per cent of the incremental slippages came from the retail CV book.

Its deputy managing director Shanti Ekambaram explained that it is the macroeconomic conditions which are impacting the bank, and added that it is a very good business to be in.

It is the smaller entrepreneurs having fleet sizes of less than 10 vehicles, which are impacted by factors, including a dip in movement of goods and logistics, challenges to pass on input price hikes to customers, and also delayed payments by the Centre and state governments, she added.

Ekambaram said that all the other parts of the retail portfolio are growing well, including the home loans and personal loans segment.

The lending rates in the home loan market are not just competitive, but "irrational" as well, the senior executive said in views which are in sync with peers, but added that the bank is chasing business because of the stickiness of such customers.

The bank's overall capital adequacy stood at 23 per cent, with the core buffer at over 21 per cent, and Vaswani said it will be focusing on growing the book at 1.5-2 times the nominal GDP of the country.

Gheewala said over a third of the profits are now coming from subsidiaries.

Among the subsidiaries, Kotak Securities' profit after tax grew to Rs 465 crore from Rs 400 crore in the year-ago period, the asset management arm's net more than doubled to Rs 326 crore, and the life insurance arm also had its net more than double to Rs 327 crore.