Kotak Mahindra Bank beats Street forecast, Q3 net jumps 31% to Rs 2,792 crore

Advances of the bank have seen a sharp rise of 23 percent to Rs 3.11 lakh crore.

Kotak Mahindra Bank Ltd beat Street estimates with a 31 percent growth in net profit at Rs 2,792 crore for the October-December quarter over the year-ago period.

A Moneycontrol poll of seven brokerages had pegged the bottomline for the private sector lender at Rs 2,593.4 crore and net interest income at Rs 5,377.7 crore, with a year-on-year growth of 24 percent.

The bank's net interest income surged 30 percent to Rs 5,653 crore in the December quarter against Rs 4,334 crore in the same quarter of the previous year. The spike in NII comes on the back of a year-on-year growth of 23 percent in loans and a jump in net interest margin to 5.47 percent from 4.62 percent.

The bank attributed the NIM expansion to its loan book pricing mix. About 69 percent of the loan book is priced on floating rate basis, within which more than half is linked to the external benchmark, which is the repo rate. Therefore, the transmission of rate hikes is swift and gives the bank enough room to offset the rise in its cost of funds with commensurate lending rate hikes.

"As long as we see interest rates picking up, you will see NIMs increasing. There is some room to go up," said Jaimin Bhatt, president and group chief financial officer of the bank at a pos-results press interaction.

There was a sharp dip in the share of the bank's low cost current and savings account (CASA) to 53.3 percent from 59.9 percent in the year-ago quarter.

"What we are seeing that as interest rates have moved up over the last year, the higher HNIs have tended to move out of SA (savings) towards term deposits," said Dipak Gupta, joint managing director of the bank. The bank's overall deposit growth was 12.8 percent.

Loan growth strength

Kotak Mahindra Bank's loan book stood at Rs 3.10 lakh crore as of December, up from Rs 2.52 lakh crore in the same period of the previous year. Retail microfinance loans grew the fastest at 121 percent, followed by credit card outstanding which grew 85 percent on-year.

Unsecured personal loans and business loans surged 69 percent. All these segments gained partly on a low base. Unsecured retail advances, including microfinance, now constitute 9.3 percent of the bank's loan book. "We are comfortable to take this to mid-teens level," said Bhatt.

The management is optimistic about the coming quarters in terms of loan demand. The bank is seeing strong demand for credit from small businesses, mid-sized companies, and retail. That said, Kotak Mahindra Bank continues to remain more conservative than its peers. "Because everything is looking good, our concerns perhaps is to not go overboard," said Gupta.

The bank's gross bad loan pile fell 14 percent on-year to Rs 5,994.6 crore. As a percentage of the loan book, gross bad loans stood at 1.9 percent, down from 2.7 percent in the year-ago quarter.

Fresh slippages were down to Rs 748 crore from Rs 983 crore in the previous quarter. This reduced the bank's provisioning needs, thereby boosting the bottomline.