Kotak Mahindra Bank sees uptick in bad loans in Q4, but hopes to reverse trend in FY18

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Kotak Mahindra Bank, country's fourth largest private lender by assets, witnessed an uptick in bad loans in the fourth quarter of FY17 from the overhang of the ING Vysya Bank's books that they inherited two years ago.

Posting the annual and fourth quarter results on Thursday, the private bank saw a 40 percent increase in its net profit for the March quarter at Rs 976.5 crore, driven by other income, operating income and net interest income.

However, the asset quality deteriorated with a 12.6 percent rise in gross NPAs (non-performing assets) at Rs 3,578.6 crore and net NPAs jumped 24.6 percent to Rs 1,718.1 crore compared with previous quarter.

Uday Kotak, Executive Vice Chairman & Managing Director of Kotak Bank said a large portion of about 75-80 percent is from the ING Vysya book and the rest from the corporate accounts. "So, we have virtually recognised all ING Vysya's stress," he said.

In percentage terms, Kotak Bank's gross NPAs were up to 2.59 percent of total loans from 2.36 percent a year ago and 2.42 percent in the previous quarter. Net NPAs worsened to 1.26 percent of total loans from 1.06 percent and 1.07 percent respectively.

Even as the bank maintained its credit costs on the lower side, the bad asset quality increased its provisioning costs.

However, Uday Kotak is upbeat on the situation from here on with its credit costs set to broadly decline. The costs have already seen a reduction to 61 bps (basis points) from 82 bps in March last year.

The retail-focused bank's corporate growth shrunk by 2 percent while retail saw annualised growth of 21 percent driven by demand for loans from agriculture, commercial vehicles and small business loans.

The bank expects the momentum in retail loans to continue in this financial year and this will drive the overall loan growth upwards of 20 percent, higher than the 15 percent growth last year.

The bank has been actively buying stressed assets and will continue to look at mergers and acquisitions to further its growth, Kotak reiterated.

In February this year, Kotak had urged the government to create an atmosphere which would boost hostile takeovers.

Kotak has always been vocal in being open to acquiring new entities and portfolios and stressed assets.

This also comes amid meeting RBI's regulatory mandate on bringing down its promoter shareholding to 30 percent by June this year from 32 percent currently.

This will also be helped by the fund raising of about Rs 5,300 crore which would be kick-started  after shareholders' approval on May 9.