Kotak Mahindra Bank Q1 consolidated net profit falls 2.5% to Rs 1,806 cr

The drop is largely on account of Kotak Mahindra Life Insurance posting a net loss of Rs 243 cr on shareholders' account due to higher death claims following the second Covid wave

Private sector lender Kotak Mahindra Bank on Monday reported a 2.5 per cent drop in consolidated net profit in the June quarter (Q1) at Rs 1,806 crore compared to Rs 1,853 crore in the year-ago quarter.

The drop is largely on account of Kotak Mahindra Life Insurance, one of its subsidiaries, posting a net loss of Rs 243 crore on shareholders’ account due to higher death claims following the second Covid-19 wave in Q1. In Q1FY21, the insurance subsidiary had posted a post-tax profit of Rs 161 crore.

But, on a standalone basis, which represents the operations of the bank, net profit rose 32 per cent year-on-year (YoY) in Q1 of FY22 aided by lower provisions and higher ‘other income’. In Q1FY22, the lender’s net profit stood at Rs 1,642 crore as against Rs 1,244 crore in the year-ago period, but marginally lower than Rs 1,682 crore in the March 2021 quarter. However, it missed the street estimates narrowly as Bloomberg poll of analysts had pegged the standalone net profit at Rs 1,652 crore.

Net interest income (NII; difference between the interest earned and expended) was up around 6 per cent year-on-year (YoY) to Rs 3,942 crore in Q1FY22 and other income more than doubled to Rs 1,583 crore from Rs 773.5 crore a year-ago period. Its net interest margin (NIM) for Q1FY22 stood at 4.6 per cent, a five-quarter high. 

Provisions and contingencies (other than tax) were down 2.8 per cent YoY in Q1 at Rs 935 crore and sequentially also it saw a significant drop of 20.7 per cent (from Rs 1,179.4 crore). Further, the lender is holding covid related provisions of Rs 1,279 crore as of June 30, 2021, which it did not dip into in the reporting quarter. Total provisions, which includes specific, standard, and covid related provisions, held by the bank at the end of Q1 stood at Rs 7,445 crore.

The lender’s asset quality saw marginal deterioration as gross non-performing assets (NPAs) rose 31 basis points (bps) sequentially to 3.56 per cent at the end of the June quarter. Similarly, net NPAs also rose by 7 bps to 1.28 per cent. SMA2 outstanding, which accounts for overdue debt between 60-90 days, has increased to Rs 430 crore at the end of June compared to Rs 110 crore as of the March 2021 quarter.  

Dipak Gupta, Joint Managing Director, Kotak Mahindra Bank said, “If you look at asset quality, it is broadly divided into two segments: due to covid, customers who were finding it difficult to pay; and customers who we could not reach well in time due to the restrictions. The first category to take some time to pay and the second category will come back soon."

“This time, it is looking far better than what it was last time around but it is too early at this point in time and we must be circumspect of wave 3”, he said. 

“Slippages for the quarter were around Rs 1,500 crore, which is certainly higher than the bank has seen in the past, and some of it has come from delayed collections. Last year (for full year 2020-21), the total slippages were around Rs 5,500 crore so to that extent our run rate is slightly higher than last year’s run rate,” said Jaimin Bhatt, Group President & Group Chief Financial Officer, Kotak Mahindra Bank

The bank said its collections were impacted in April and May due to the second wave of the pandemic, but it has shown improvement since then. 

The bank has disclosed that as per the Reserve Bank of India’s (RBI) covid resolution framework and one-time restructuring scheme for MSMEs, it has implemented restructuring of loans worth Rs 552 crore as of the June quarter compared to Rs 435 crore in the March quarter. 

Sequentially, the bank’s loan book has shrunk by almost 3 per cent to Rs 2.17 trillion. Including credit substitutes, the total customer assets of the lender were down 1.46 per cent to Rs 2.35 trillion. “We had revved up our engine during November - December last year but we want to be slightly more cautious and see how everything pans out before we press the accelerator,” said Gupta. 

On the deposits side, the current account-savings account (CASA) ratio further improved to 60.2 per cent at the end of the June quarter from 56.7 per cent a year ago; it was stable compared to 60.4 per cent in the March 2021 quarter. “Our cost of funds has been coming down quite a lot. Over the last year or so, we have reached levels where our cost of funds is very competitive and the 60 per cent CASA ratio is what is helping us,” said Bhatt.
 

Except for the life insurance arm, all other key subsidiaries did well posting a YoY growth of 16-65 per cent in net profit for Q1FY22. Kotak Mahindra Capital saw its PAT surge 600 per cent YoY to Rs 42 crore.

Shares of Kotak Mahindra Bank closed 1 per cent higher at Rs 1,740.40 on the BSE post the announcement of the results.
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Disclosure: Entities controlled by the Kotak family have a significant shareholding in Business Standard.