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Informist, Tuesday, Oct. 15, 2024

By Richard Fargose

MUMBAI – Kotak Mahindra Bank's net profit in Jul-Sept is expected to rise 9.1% on year to INR 34.80 billion, according to an average of estimates by 12 brokerage firms. Further moderation in margins and higher operating expenses due to the Reserve Bank of India’s ban on digital on-boarding of new customers for the bank is likely to weigh on the bottom line, analysts said.

On a sequential basis, the private sector bank's net profit is seen tumbling over 44% mainly due to the statistical effect of an exceptionally high base. In Apr-Jun, the bank’s net profit soared to INR 62.50 billion due to a net gain of 35.2 bln rupees from divestment of 70% stake in its general insurance arm to Zurich Insurance Co.

The estimates for net profit of the bank in Jul-Sept. range from INR 32.81 billion to INR 36.74 billion. The bank will announce its earnings for Jul-Sept on Saturday.

"Despite better growth vs peers, we expect core operating profit to remain in check due to soft margins," Emkay Global Financial Services Ltd said in a pre-earnings report. "Sharp fall in net profit QoQ is due to absence of one-off gains from KGI(Kotak General Insurance Co Ltd)."

The net interest income of the bank is expected to rise 11.2% from a year ago to INR 70.00 billion, according to the average of the 12 brokerage estimates. Sequentially, the net interest income is seen rising 2.3%. The estimates on net interest income of the bank for the quarter range from INR 68.47 billion to INR 71.39 billion.

"NII (net interest income) growth will be in-line with average loan growth as the rise in yield on advances to be in tandem with rise in cost of deposits," YES Securities said in a pre-earnings report.

Brokerages expect the bank’s loan book to have grown 15.0-16.7% on year as on Sept. 30, at a slower pace than a quarter ago. Meanwhile, the total deposits also seen rising by 15.5-16.0%. As on Jun. 30, the bank’s net advances were up 19% on year at INR 3.9 trillion and deposits up nearly 16% on year at INR 4.47 trillion.

Nirmal Bang Equities said the deceleration in credit growth amongst the private sector banks is mainly on account of some stress being built up in unsecured lending, including microfinance and RBI’s nudge on bringing credit-deposit ratios down.

In the past few months, top RBI officials have on multiple occasions warned that India's banking sector could face significant liquidity risks owing to high credit-deposit ratios.

With credit growth outpacing deposit growth, most banks have raised their deposit rates amid rising competition and are increasingly relying on bulk term deposits and CDs to fund asset growth, which is likely to hurt their net interest margin further.

Brokerages see the bank’s net interest margin moderating by 3-10 basis points during the quarter under review. In Apr-Jun, the bank’s net interest margin was 5.02% as against 5.57% a year ago.

Dolat Capital Market Pvt Ltd expects the margin to decline 7-10 bps and Prabhudas Lilladher Pvt Ltd see a decline by 3 bps due to a decrease in loan yields and rise in the cost of funds.

On the asset quality front, Emkay Global expects slippages to remain high due to rising stress in unsecured retail loans including personal loans, cards, and microfinance. In Apr-Jun, fresh slippages increased to INR 13.58 billion from INR 13.05 billion a quarter ago and INR 12.05 billion a year ago.

In the previous quarter, the gross non-performing asset ratio remained unchanged on quarter at 1.39% as of Jun 30. Net NPA ratio increased to 0.35% from 0.34% a quarter ago.

Most brokerages see the bank's cost to income ratio rising in Jul-Sept due to the increased focus on physical branches on the back of the RBI’s ban on digital on-boarding of new customers.

“The cost to income ratio is expected to be 47.3% in Q2FY25 (Jul-Sept) given the increased investment in physical branches at the back of the ban,” KR Choksey Research said. In Apr-Jun, the cost to income ratio was 46.23%.

Analysts will keenly watch the bank management's outlook on loan and deposit growth and the developments on the digital on-boarding ban imposed by the RBI.

In April, the RBI directed Kotak Mahindra Bank to stop issuing fresh credit cards and on-boarding new customers through its online and mobile banking channels following serious deficiencies and non-compliance in information technology management.

RBI’s suspension of new-card issuance has caused a loss of market share for Kotak Mahindra Bank’s card portfolio. The bank’s share in the credit card industry fell to 5.1% in August from 5.8% in March.

Tuesday, shares of Kotak Mahindra Bank fell 0.8% to 1,895.20 rupees on the National Stock Exchange.

Following are the standalone Jul-Sept earnings estimates for Kotak Mahindra Bank, in INR million, based on reports from 12 brokerages:

End

Edited by Vidhi Verma

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