Kotak Bank Q1 Profit Surges 79% on Insurance Stake Sale

Mumbai, Jul 20 (PTI) Kotak Mahindra Bank on Saturday reported a 79 per cent jump in its consolidated net profit in the June quarter to Rs 7,448 crore compared to the year-ago period, majorly helped by a stake sale in its general insurance arm and the performance of subsidiaries.

On a standalone level, the private sector lender's net profit grew by 2 per cent to Rs 3,520 crore, and the management conceded that the business restrictions imposed by the RBI due to shortcomings on the technology front had an impact.

Its chief executive and managing director Ashok Vaswani said the bank has made 'significant progress' on the technology front during the quarter and has also appointed consultancy firm GT Bharat as an external auditor to assess its systems.

It has also beefed up its internal team with resources coming in from tech majors like Accenture, Infosys, Oracle and Cisco, he said. However, it is up to the RBI when it chooses to lift the restrictions.

"From the technology perspective, we have made significant progress during the quarter. In consultation with the RBI, we put together a comprehensive plan to fix all outstanding issues," he told reporters, adding that the bank is in constant communication with RBI.

The credit card business has also suffered because of the RBI restrictions, and as the denominator goes down, the asset quality issues have surfaced in a starker way, the bank said.

Overall customer additions have been restricted at 6 lakh only during the quarter, its chief financial officer Devang Gheewalla said, reminding that the RBI order set in very early into the quarter on April 25 which restricted quicker additions.

Courtesy the ban on digital onboarding, the new additions in its flagship paperless offering '811' have been muted, Vaswani said, adding that the team has instead devoted focus on deepening the relationships with the existing clients and get more out of the same customer.

On unsecured lending, where the RBI has expressed concerns at a systematic level, Kotak Mahindra Bank also witnessed stress in the lower ticket size, new to credit customers segment and also because of over-leverage in the credit card and personal loan segments, Vaswani said.

"We are working very carefully with our teams and those customers to try and get them back to good financial health," he said.

The personal loans are doing better than the credit cards, its deputy managing director Shanti Ekambaram said, adding that bank still has the appetite to grow the unsecured book in the mid-teens.

For the reporting quarter, its core net interest income grew 10 per cent year-on-year to Rs 6,842 crore, but was down when compared with the Rs 6,909 crore in the quarter-ago period.

The advances grew 3.69 per cent over March, while the deposits seemed to have suffered as a result of the difficulties in new customer additions because of degrowth in the overall number.

Its net interest margin declined to 5.02 per cent from 5.28 per cent in March, and Gheewalla said a variety of factors including the impact on issuing high-interest margin bearing credit cards, and higher delinquencies in microlending portfolios in some states of South and North India was among the reasons for the narrowing.

Fresh slippages came at Rs 1,358 crore, and the gross non-performing assets ratio was stable at 1.39 per cent for the bank.

The bank's overall capital adequacy stood at 22.8 per cent, and the core tier-I buffers were at 21.9 per cent at the end of June.

In the June quarter, Zurich Insurance Group completed the deal to take a 70 per cent stake in Kotak General Insurance.

The transaction has resulted in an increase in the consolidated PAT by Rs 3,013 crore and standalone PAT by Rs 2,730 crore.

Kotak Mahindra Bank holds a 30 per cent stake in KGI and will continue to act as corporate agent of the insurer for distribution of general insurance products.

Among the subsidiaries, Kotak Securities' net profit jumped to Rs 400 crore from Rs 219 crore in the year-ago period.

Kotak Mahindra Life Insurance's net profit declined to Rs 174 crore from Rs 193 crore, the asset management arm's had its net jump to Rs 175 crore from Rs 106 crore and the microlending arm had its net profit decline to RS 95 crore from Rs 50 crore.