Lending business remains sluggish for Kotak Mahindra Bank
1 min read 30 Apr 2014, 09:22 PM ISTA weakening economy continued to take a toll on Kotak Mahindra Bank's lending business
Premium
Kotak Mahindra Bank Ltd’s capital markets business has done pretty well in the March quarter as equity markets rallied, but a weakening economy continued to take a toll on its lending business.
Net profit of the broking business doubled to ₹ 44 crore although that increase is partly due to a low base. Indian equity markets have been hovering at an all-time high and turnover, particularly from retail investors, has increased, boosting broking profits. Other fee-based businesses have done well, too. The life insurance business continued to maintain a 12% year-on-year growth rate in profit while the investments business profits also doubled to ₹ 16 crore in the March quarter.
The financing business—Kotak Mahindra Bank (stand-alone) and Kotak Mahindra Prime Ltd—continued to struggle because of low economic growth. While consolidated loan growth at 8% over a year ago was better than the 6% pace seen in the December quarter, it was still lower than industry growth.
The slowdown in credit growth, however, can be construed as a prudential measure. It is mostly owing to a 30% decline in the commercial vehicle and construction equipment loan book, a segment particularly susceptible to bad loans. Excluding this, advances growth was a decent 17%. Auto loans grew at 4%, while the corporate book saw a pick-up in growth to 19% from 6% in the previous quarter.
The bank was able to boost its net interest income thanks to 20 basis points year-on-year increase in net interest margins (NIMs) to 4.9%. However, operating and net profits remained little changed from a year ago because of an increase in operating expenses.
One basis point is one-hundredth of a percentage point.
The bank’s asset quality improved slightly. Gross bad loans as a proportion of the loan book stood at 1.63%. Restructured loans also fell to ₹ 10 crore at the end of March compared with ₹ 42 crore three months ago.
While asset quality and NIMs are positives, the bank has to improve loan and earnings growth. The management has guided for a 15-20% loan growth in the current fiscal year, but fell short of a similar target in 2013-14.
Kotak shares have lagged S&P BSE Bankex returns since the start of 2014. Given that they trade at an expensive 4.4 times estimated book value for 2014-15, earnings have to grow faster for the bank to have a chance of outperforming the Bankex.
