Kotak Mahindra Bank posts 27% rise in post-tax profit at Rs 2,348 crore

Kotak Mahindra Bank on Monday posted a 27 percent jump in its consolidated post-tax net profit at Rs 2,348 crore but reported a sharp slowdown in credit growth and an uptick in asset quality stress which spooked investors. On a standalone basis, it reported a 23 percent increase in profit to Rs 1,595.90 crore.

The bank, whose scrip witnessed a 4.70 percent correction after the results, will only be able to achieve a credit growth in "mid-teens" which is slower than the initial expectations, its joint managing director Dipak Gupta told reporters here. The private sector lender reported a 10 percent growth in advances, which just a notch above the system's growth.

Gupta said the bank wants to "genuine and lendable" borrowers who are few in number, and also pointed to RBI's single group exposure norms as a worry impeding growth. He said there has been an increase in the "unknown unknowns", wherein an otherwise well-performing concern goes suddenly reports troubles and underlined that this aspect is entity-specific and not sectoral.

The bank's stock of gross non-performing assets (NPAs) increased to 2.46 percent as against 2.07 percent in the year-ago period. A third of its over Rs 1,000 crore in fresh slippages came from two "unknown-unknowns", where a company was downgraded due to unforeseen events. The "unknown unknowns" are coming up because of a variety of challenges, including governance, accounting issues, regulatory moves, and judicial interventions, he said, without elaborating or pointing out to the two cases.

On the loan growth front, the bank did not write much of loans on the corporate side which accounts for over 40 percent of the book due to slowdown in Capex, Gupta said. Stating that the retail book quality is holding up as the broader economic worries are not playing into jobs as yet, Gupta said it is cautious about the unsecured part where there is a threat of a Ponzi behavior where one borrower borrows from multiple institutions to take care of repayments.

"The companies who you can lend comfortably has shrunk, the choice is how much more can you lend to them. SME loan growth has been slow, loan requirements in that segment are pretty restricted so we have not found opportunities to grow as much as we would want," Gupta said. He explained writing a loan gives a 2 percentage point spread to a bank as interest income, difficulties in recoveries can lead to 100 percent wipe-off of the same amount and added that the shocks typically come to haunt a bank three years later.

The nominal GDP growth has to go up to above 10 percent from the under 8 percent in order to get the loan growth back, he said, adding that from a future outlook perspective, things are looking at the most positive in two quarters now. The share of advances with unpaid dues for 61-90 days came down in the December quarter to Rs 374 crore, Gupta said.

For the reporting quarter, the bank's net interest income grew 17.22 percent to Rs 3,430 crore, helped majorly by an expansion in net interest margin to 4.66 percent from the year-ago's 4.22 percent. Its overall provisions came at Rs 444 crore as against a write-back of Rs 32.30 crore in the year-ago period and the quarter ago's Rs 407 crore.

Gupta said its distressed asset fund has closed a deal recently without elaborating on the transaction. All the subsidiaries reported s surge in profits, including broking arm's Rs 128 crore, life insurance arm's Rs 166 crore, and Kotak Mahindra Capital's Rs 40 crore.

The bank scrip closed 4.70 percent down at Rs 1,618.05 on the BSE, as against a 0.99 percent correction on the 30-share benchmark.