Economic slowdown likely to push up credit costs, says Uday Kotak

The slowing economy and a delayed turnaround are likely to push up credit costs for the private sector lender going forward, Uday Kotak, MD, Kotak Mahindra Bank said.

“We do believe that the credit costs are going to be a little higher than what we had bargained for at the beginning of the year,” Kotak said in an earnings call, adding that the bank expects the credit costs to be around 60 basis points.

The bank's credit cost rose to 62 basis points in the first half of current financial year, as compared to 51 basis points in the same period last year.

Kotak said the slowing economy has impacted the overall credit environment and that is reflected in the bank’s performance in the first half of the current financial year. He expects the steep gradient of the slowdown to flatten in the second half.

He said the longer-than-usual monsoon spell, which has pushed into October, has delayed what would otherwise have been a quicker turnaround of the economy.

Kotak expects credit growth to be between 15-20 percent, supported by a higher net interest income (NII) and net interest margin (NIMs) by end of March 2020.

Kotak Mahindra Bank reported a higher-than-expected 51 percent rise in net profit in the July-September quarter, boosted by lower tax expenses.

Its loan book expanded 15 percent in the second quarter, as compared to 18 percent in the previous quarter and 21 percent last year.

The bank’s NIMs rose to 4.61 percent in the second quarter from 4.19 percent last year.

On the asset quality front, its gross non-performing assets (NPA) ratio rose to 2.32 percent in the second quarter, from 2.19 percent last quarter and 2.15 percent in the same period last year.