Kotak Mahindra Bank Ltd’s June-quarter profit more than doubled from a year ago as it earned more interest income and collected higher fees and commissions.
On a stand-alone basis, the bank reported a net profit of Rs.741.97 crore compared to Rs.189.78 crore a year ago. Net interest income rose 20.1% from a year ago to Rs.1,919.10 crore.
The numbers for the current quarter are not comparable with last year’s because the bank had taken pension provisions and one-time stamp duty charges worth nearly Rs.400 crore, after it began the procedure of merging ING Vysya Bank with itself in April 2015.
“All through the last financial year, we were trying to make sure that both banks are merged properly and all processes are integrated. That integration is now over and we should start seeing the benefits of it going ahead now. We are expecting our return on assets to improve and our cost-to-income ratio to come down steadily,” said Dipak Gupta, executive director, Kotak Mahindra Bank.
Net interest income, the core income a bank earns from its lending business, grew 18.59% on a consolidated basis to Rs.2,565.73 crore from Rs.2,163.49 crore a year ago, the bank said on Thursday. Non-interest income, which includes fees and commissions and treasury income, rose 20.2% to Rs.1,079.39 crore from Rs.898.20 crore a year ago. Net interest margin remained steady on a quarter-on-quarter basis at 4.37%.
Total deposits rose 20% from a year ago to Rs.1.4 trillion, while advances rose 17% to Rs.1.21 trillion. The bank said it has not sold any loans to asset reconstruction companies. Among total advances, the bank’s commercial vehicle and commercial equipment business were major contributors to growth, while the bank’s retail loan growth remained steady, said Gupta.
A Bloomberg poll of four analysts had estimated a net profit of Rs.1,087.70 crore on a consolidated basis.
Kotak Mahindra Bank’s gross non-performing assets (NPAs) rose 8.24% to Rs.3,265.18 crore at the end of the June quarter from Rs.3,016.55 crore in the March quarter. On a year-on-year basis gross, NPAs jumped 25.8%. Provisions and contingencies rose marginally by 0.75% to Rs.213.57 crore in the quarter from Rs.211.98 crore in March. Net slippages during the quarter were at about Rs.200 crore.
“The NPA positions is slowly stabilizing now and we should see an improvement going ahead. Some SME (small and medium enterprises) have shown signs of weakness as it has passed on from larger companies. SMEs in the commodity related space have shown weakness,” Gupta said.
As a percentage of total loans, gross NPAs stood at 2.2% at the end of the June quarter as compared to 2.06% in the previous quarter and 2.04% in the year-ago quarter. Net NPAs were at 1.06% in the June quarter, compared to 0.93% in the previous quarter and 0.93% in the same quarter last year.
Loan accounts worth Rs.474 crore were categorized as special mention account-2 (SMA-2), where repayment has been pending for over 60 days, as on 30 June. This number is at about 0.39% of the net advances.
“The SMA-2 is sort of the peak where stressed assets can be. From there the expectation is that the level of stress will actually come down, as the bank will try to resolve the issues in these accounts,” Gupta said.
In December, the Reserve Bank of India (RBI) conducted an asset quality review across the banking sector, following which banks were asked to recognize visibly stressed assets as NPAs and provide for them. A number of banks have seen this impact their profitability.
“Key ratios at the bank should only improve going ahead as the cost part of the integration exercise is now over. There will be an improvement in core operations, there might be some marginal pressure coming from the bank’s asset quality. Overall, Kotak Mahindra Bank will continue to do better than peer banks. The bank’s valuation is at its peak and we are maintaining our hold rating,” said a banking analyst with Reliance Securities speaking on condition of anonymity.