Kotak Mahindra Bank net interest margins scale over a decade high

The bank attributed the NIM expansion to its loan book pricing mix.

The net interest margins (NIM) of Kotak Mahindra Bank shot past a decade high during the October-December quarter of FY23.

Net interest margin reveals the amount of money that a bank is earning in interest on loans compared to the amount it is paying in interest on deposits.

"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, Kotak Mahindra Bank during a press conference held after the results announcement.

The bank in the December quarter reported a net interest margin of 5.47 percent, which was the highest since the fourth quarter of financial year 2010-11.

As on March 31, 2011, the net interest margin was 5.6 percent, as per data compiled from investors' presentations.

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.

In the past few months, most banks including Kotak Mahindra bank have hiked lending rates in line with aggressive rate hikes by the Reserve Bank of India (RBI).

Despite the race for collecting higher deposits to match the rising credit growth, returns on deposits have not increased very sharply compared to lending rates.

As per Kotak Mahindra Bank’s website, the marginal cost of lending rates are 8.15-9.15 percent across tenures.

On the other hand, it is giving returns in the range of 3.25-7.00 percent across deposit instruments and tenures.

The rise in rates on deposits and loans was witnessed after the RBI started increasing repo rate aggressively to fight higher inflation. Since May, the central bank hiked repo rate by 225 basis points (Bps).

Meanwhile, on January 21, the Kotak Mahindra Bank reported a 31 percent growth in net profit at Rs 2,792 crore for the October-December quarter over the year-ago period.

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.