Income from brokerage business boosts Kotak Mahindra Bank net

Mumbai: Kotak Mahindra Bank Ltd on Wednesday said its consolidated net profit in the fiscal first quarter rose 11.3% to ₹ 698.31 crore in the three months ended 30 June from ₹ 627.50 crore in the year earlier helped by a doubling in the bank’s income from its brokerage business.

Higher other income and a substantial drop in provisions also pushed up the bank’s profit in April-June 2014 versus the corresponding period last year, though the consolidated profit was lower than the Bloomberg survey of six analysts which had pegged it at ₹ 707.5 crore.

Provisions dropped to just ₹ 27 crore in June 2014 from ₹ 160 crore in June 2013 as the bank wrote back ₹ 49 crore which it had set aside for losses on its government bond investments last year.

Joint managing director Dipak Gupta said the writeback and higher income from its brokerage business were the main contributors to the bank’s profit.

Kotak Securities, the brokerage arm of the bank, earned a net profit of ₹ 68 crore in the June quarter—more than double the ₹ 31 crore it had earned in the year-ago period, mainly due to a robust stock market.

Two Kerala-based banks South Indian Bank Ltd and Federal Bank Ltd also announced their quarterly results on Wednesday. South Indian Bank reported a 10% increase in net profit to ₹ 127 crore from ₹ 115 crore a year ago, while Federal Bank’s net profit in the quarter more than doubled to ₹ 220 crore from ₹ 106 crore in the year-ago period.

Both banks were helped by a drop in their provisions. Federal Bank’s provisions dropped sharply to ₹ 22 crore in the June quarter from ₹ 235 crore in the corresponding period last year, directly contributing to the rise in profit.

Provisions dropped mainly because the bank’s non-performing assets (NPAs) dropped during the quarter. Net NPA as a percentage of net advances dropped to 0.68% from 0.91% last year, lower than 0.74% in the quarter ended March 2014.

Shyam Srinivasan, managing director and chief executive officer of the bank confirmed that the fall in provisions was mainly because Federal Bank had made large provisions on two cases in the same quarter last year.

“One case was Nafed (National Agriculture Co-operative Marketing Federation of India) where we made a provision of ₹ 200 crore. Another was a Chandigarh-based firm. The bank has seen a consistent improvement in asset quality over the last four quarters and expects to see better asset quality this year,” Srinivasan said in a conference call.​

South Indian Bank’s provisions dropped 10% to ₹ 95 crore from ₹ 105 crore last year, despite a rise in NPAs versus the quarter ended March. Net NPAs increased to 0.91% from 0.78% in the quarter ended March.

Ananda Bhoumik, senior director, India Ratings, said the only surprise among the bank results was the slight pick up in NPAs of South Indian Bank.

“The market expectations have largely been met in the smaller private bank results. The easing pressure on asset quality due to better macroeconomic conditions have helped. We expect a similar trend from larger private players,” Bhoumik said.

Kotak Mahindra Bank’s net interest margin, or the difference between interest earned on loans and that paid on deposits, improved to 5% from 4.8% last year. Gupta from Kotak said the margins were in line with the bank’s historic average of above 4.5%.

“However, it would be a challenge to keep margins at 5%. Over the last 12 months, we have built our franchise in the liabilities space which has given us good steady deposits which will be there with us for eternity and hence our savings account deposits have increased 37% while certificate of deposits (CDs) have fallen 40%,” Gupta said.

A bank pays a lower rate for savings account deposits compared to CDs which are mostly raised in bulk. Kotak currently offers a 5.5% rate on deposits up to ₹ 1 lakh and 6% above that value.

Kotak Mahindra Bank shares gained 1.47% to close at ₹ 884.25 per share on the BSE, while South Indian Bank lost 2.97% to close at ₹ 32.70 per share and Federal Bank gained 0.93% to close at ₹ 125.20 per share. The benchmark Sensex gained 1.27% to close at 25,549.72 points.

Ravindra Sonavane contributed to this story.