MUMBAI
:
Kotak Mahindra Bank Ltd’s reported profit jumped sharply during the first quarter of FY25 (Q1FY25), thanks to its insurance arm stake sale. Standalone net profit rose as much as 81% year-on-year to ₹6,250 crore, aided by an exceptional gain after the bank divested 70% stake in Kotak General Insurance to Zurich Insurance. Excluding the stake-sale gains, the bank’s net profit stood at ₹3,520 crore.
Investors weren’t impressed. On Monday, Kotak’s shares fell close to 4%. Notably, the pressure on net interest margin (NIM) was evident. In Q1FY25, Kotak’s NIM fell 26 basis points (bps) sequentially to 5.02% mainly because the Reserve Bank of India (RBI) ban clogged the bank’s unsecured loan pipeline and its digital deposit mobilisation.
In April, RBIhad barred Kotak from acquiring customers through its digital and mobile banking channels as well as onboarding new credit card customers. This move was in response to deficiencies found in the bank’s IT systems.
Further, the pressure on garnering deposits, particularly low-cost deposits, was felt by Kotak, too. Its current account and savings account (CASA) deposit ratio has been on a declining trend. At June-end, Kotak’s CASA ratio declined 210 bps sequentially to 43.4%, marking a multi-quarter low.
Expressing concerns over the fall in CASA deposits, the bank’s managing director and chief executive Ashok Vaswani said CASA deposit mobilisation is their “number one focus”. Kotak’s asset quality ratios were stable sequentially. The management has flagged off worries in some unsecured credit card lending businesses. This could add to the pressure on margin ahead.
“(The) need for adequate liquidity and slower unsecured growth could further affect NIM; we cut NIM for FY25E by 5bps to 4.59%,” said a report by Prabhudas Lilladher.
Hereon, Kotak’s performance would hinge on several factors, the most important being the lifting of RBI’s current embargo on the bank to onboard clients digitally. “Amid heightened competition for deposits, we remain watchful on the pace of deposit accretion for the bank and the impact on margins over coming quarters,” said analysts from Motilal Oswal Financial Services. They believe that the removal of the ban remains critical for the bank to deliver sustainable growth and earnings.
A lot depends on the timing when RBI would lift the embargo, which Vaswani indicated was an “ongoing’ process without divulging details. The management said RBI has assured them that it is not as if the regulator will wait for every single thing before it lifts the embargo. “They want us to demonstrate ongoing progress,” Vaswani said in the earnings call.
Meanwhile, a subdued earnings outlook may cap significant gains in the stock, which has fallen about 8% so far in 2024.
