Despite a deteriorating macroeconomic scenario, private banks have generally reported good results for the fourth quarter of the last fiscal, many beating Street expectations.
While net interest margins declined, many were able to report strong profit growth because of improving asset quality and ergo, a decline in provisioning.
The March numbers of Kotak Mahindra Bank Ltd continue that trend. The bank, along with its subsidiaries, reported a 17% rise in net profits from a year ago. That gain was driven by a 21% rise in net interest income. Surprisingly, the bank was able to improve its net interest margin to 5.6% for the fourth quarter, an increase of 20 basis points (bps) from the December quarter. One basis point is one-hundredth of a percentage point.
Also See Neck and Neck (PDF)
One reason for this could be because the bank was able to grow higher yielding loans such as those in the commercial vehicle and construction equipment segment (the non-banking financial company arm) faster than corporate and home loans. Brics Securities Ltd reckons that the bank was able to deploy cash from maturing securities at higher yields.
However, the non-interest income businesses, which declined 23%, took the sheen off Kotak’s results. The bank reported a loss in sale of investments and its premia from the insurance business fell. While the investment banking division more than doubled profits, the securities and asset management businesses continued to be a drag. Kotak Securities reported a 28% decline in net profits while the Kotak Mahindra AMC and Trustee Co’s numbers fell by three-quarters from a year ago.
As a result, operating profit fell 5% from a year ago. But because of an 89 bps reduction in net non-performing assets as a percentage of customer advances to 0.59%, Kotak’s provisioning expenses were a net positive. It was able to write in Rs 8.5 crore compared with setting aside Rs 121.7 crore for bad debts in the year-ago quarter. In other words, the gains from provisioning were responsible for the entire increase at the bottom line level.
The headwinds facing the banking business are well known. Kotak’s consolidated loans grew 3% from the December quarter, less than the industry average.
For the subsidiaries, too, the scenario is not too rosy. Stock market volatility means deals segment may take a while to pick up. Moderating growth in vehicle sales could affect the business of Kotak Mahindra Prime, the second largest contributor to the group’s profits. For the share to break away from the Bank Nifty, which it has been mirroring since the start of the year, businesses such as broking, asset management and life insurance should come to the party.
Graphic by Yogesh Kumar/Mint
We welcome your comments at email@example.com