Mumbai: Kotak Mahindra Bank Ltd and Yes Bank Ltd posted higher profit for the three months ended December, riding on interest income largely due to loan demand from companies as well as individuals.
However, net interest margin (NIM) contracted for both private banks as the cost of funds increased and they could not fully pass on the rate hikes to customers.
Kotak’s consolidated profit rose 16% to Rs384 crore. It earned Rs1,277.60 crore as interest, up 41.26% from the Rs904.40 crore it earned in the same period last year.
Yes Bank’s profit rose 51.8% to Rs191.1 crore, the highest in 25 quarters since its inception, as the bank’s core interest income rose 53.2% to Rs323.1 crore.
Yes Bank’s demand largely came from engineering, construction, healthcare, and agriculture sectors while Kotak sold mortgages, auto loans and also financed commercial vehicles. Yes Bank’s NIM dropped to 2.8% from 3.1% while Kotak’s dropped to 5.4% from 6% last year. NIM is the difference between interest charged on loans and that paid on deposits.
Yes Bank managing director and chief executive officer Rana Kapoor called the drop in NIM temporary because of recent interest rate changes as not all of its loans could be repriced.
“But 80% of our loan book is maturing in six months, so we expect NIM to reprice above 3% in the next fiscal,” he said.
Chaitra Bhatt, analyst at LKP Securities Ltd, said Yes Bank’s results were in line with her expectations.
“Only other income was higher than expected (Rs191 crore vs estimated Rs185 crore) due to performance in financial markets. Profitability will remain steady next quarter,” she said.
Both banks expect NIM to remain under pressure next quarter.
Kotak Mahindra’s chief financial officer Jaimin Bhatt said the higher cost of funds and the lag in passing this on to borrowers could impact NIM.
“The cost of funds has increased 75 to 100 basis points in the last year but for us, NIMs have been hit because we have moved from high-yielding personal loans and credit cards towards corporate loans,” he said.
An analyst with a foreign brokerage said, “Lower NIMs were not a surprise. I expect NIMs will likely come off next quarter.”
Both banks hiked interest rates in the last quarter. Yes Bank raised both its base rate and prime lending rate (PLR) by 1 percentage point, while Kotak hiked both rates by 0.25 percentage point.
For technical reasons, Indian banks have two loan rates. The PLR, theoretically meant for the best customers of the bank, is still in vogue, even as the base rate, or the minimum lending rate, came into effect in July.
All fresh loans are linked to the base rate whereas older customers are serviced through PLR.
The cost of funds for both Yes Bank and Kotak increased as both have a lower amount of current and savings account deposits (Casa).
Casa is the cheapest source of deposits for banks as they do not pay any interest on current accounts and only a minimum 3.5% interest on savings accounts. CASA constitutes only 10.2% of Yes Bank’s deposits while for Kotak it is 28%.
A drop in provisions helped Kotak. The bank’s provisions dropped as it recovered more bad loans than it added during the quarter.
“Provisions dropped to Rs42 crore from Rs119 crore last year while net non-performing loans dropped by Rs15 crore as we went slow on personal loans, commercial vehicles and credit cards, the segments where NPAs were coming from,” Bhatt from Kotak said.
Shares of Kotak rose 1.51% to close at Rs419.3, while that of Yes Bank rose 1.2% to close at Rs273.1 on the Bombay Stock Exchange, even as the benchmark index, the Sensex, rose 0.36% to close at 19,046.54 points.