Kotak Mahindra Bank expects cost of funds to stabilise despite margin squeeze in Q4

The private lender saw a contraction of 47 basis points (bps) in its net interest margins (NIMs), declining to 5.28 percent in Q4FY24 from 5.75 percent a year earlier

Kotak Mahindra Bank showcased robust profit and net interest income (NII) figures for Q4FY24, yet faced margin challenges due to escalating cost of funds. During the post-earnings analyst call, the management indicated that it expects cost of funds to stabilise gradually in the coming quarters, subjected to external rate movements.

"We anticipate a continued rise in the cost of funds in the forthcoming quarters, albeit at a slower pace compared to recent periods. The stabilisation of the cost of funds hinges on external rate movements," Kotak Mahindra Bank said after announcing its Q4 results.

The private lender saw a contraction of 47 basis points (bps) in its net interest margins (NIMs), declining to 5.28 percent in Q4FY24 from 5.75 percent a year earlier. However, there was a marginal expansion of 6 bps from 5.22 percent in Q3FY24.

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In the current scenario, most banks have experienced either stagnant or decreasing margins due to the persistent high cost of funds. Bank management forecasts suggest that margins may continue to be under pressure for the next 1-2 quarters before showing signs of normalization, bolstered by expectations of lending rate reductions in the latter half of the fiscal year.

HDFC Bank, India's largest private lender, maintained its margins in Q4FY24, while ICICI Bank, the second largest, witnessed a 50 bps YoY contraction in margins during the same period.

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Meanwhile, Kotak's NII rose by 13 percent YoY to Rs 6,909 crore, while profit-after-tax (PAT) climbed by 17 percent YoY to Rs 5,337 crore in Q4FY24.

On the asset-quality front, the bank's gross non-performing assets (GNPA) declined to 1.39 percent in the March quarter as against 1.73 percent in Q3FY24 while net non-performing assets (NNPA) stood unchanged at 0.34 percent.