Kotak Mahindra Bank’s Quarterly Profit Falls Short of Expectations as Provisions Increase

 

MUMBAI, Oct 25 – Kotak Mahindra Bank Ltd, one of India’s leading private lenders, reported a smaller-than-expected profit for the July September quarter as higher provisions for potential loan losses weighed on earnings. The Mumbai-based bank posted a standalone net profit of 32.53 billion rupees ($370 million) for the second quarter, down from 33.44 billion rupees in the same period last year.

Market estimates compiled by LSEG had projected a profit of 34.49 billion rupees. Provisions set aside for potential bad loans and other contingencies rose 43% year-on-year to 9.47 billion rupees, offsetting gains from steady loan growth.

Despite the hit to profit, net interest income increased 4% to 73.11 billion rupees, supported by a 14% rise in total advances. Corporate loans, which account for about one-fifth of the bank’s loan portfolio, expanded the fastest at 17%, while consumer lending making up nearly half of total loans grew 16%. “Our focus will now shift toward gradually rebuilding our retail unsecured lending business,” said CEO Ashok Vaswani during a media call. Deposits climbed 15% over the quarter.

India’s banking sector has seen a steady recovery in credit demand after several subdued quarters. Analysts expect loan growth to strengthen in the second half of the fiscal year, helped by recent tax cuts and improving economic sentiment.

“Beyond credit cards, we’re witnessing a steady recovery in personal loan disbursements and continued improvement in the microfinance segment,” said CFO Devang Gheewalla. However, profitability margins remained under pressure. The bank’s net interest margin (NIM) dropped to 4.54% from 4.91% a year earlier, partly due to the Reserve Bank of India’s cumulative 100 basis point rate cuts this year.

Lower policy rates typically compress short-term bank margins as lending rates adjust faster than deposit rates. On a positive note, Kotak Mahindra Bank’s asset quality improved, with the gross non-performing asset (GNPA) ratio falling to 1.39% as of September-end, compared to 1.48% in the previous quarter and 1.49% a year ago.

The bank also announced the reappointment of C.S. Rajan as chairman of the board until October 2027, following approval from the central bank. ($1 = 87.8950 Indian rupees)