Home >Markets >Mark To Market >Kotak Mahindra Bank shrinks loan book to stave off pandemic risk
The lender’s loans to small businesses shrank by double digits for the second straight quarter. The book was down by 17% while unsecured personal loans and consumer durable loans dropped 15% year-on-year.
The lender’s loans to small businesses shrank by double digits for the second straight quarter. The book was down by 17% while unsecured personal loans and consumer durable loans dropped 15% year-on-year.

Kotak Mahindra Bank shrinks loan book to stave off pandemic risk

The private sector lender’s loan book shrank by a deeper 4% year-on-year (y-o-y) in the September quarter compared to the 1.9% decline in the previous quarter

Kotak Mahindra Bank Ltd has kept to its conservative approach amid the covid-19 pandemic, choosing to shrink its loan book to stave off risk in the September quarter.

The private sector lender’s loan book shrank by a deeper 4% year-on-year (y-o-y) in the September quarter compared to the 1.9% decline in the previous quarter.

Source: Company presentation
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Source: Company presentation

The pattern of reduction was visibly more towards riskier credit. The lender’s loans to small businesses shrank 17%, a sharp drop for the second straight quarter. Besides, unsecured personal loans and consumer durable loans put together dropped by 15% y-o-y.

The two segments that saw growth were tractor financing and agriculture loans, symptomatic of a sharp recovery in the rural economy. Home loans also grew at 4%, given their relatively safe nature due to the high collateral.

The management said it is beginning to see green shoots on lending opportunities. However, the reluctance to lend was apparent. “We are not overly pessimistic. We just want to wait and watch but that does not mean we will wait endlessly," said Dipak Gupta, joint managing director, Kotak Mahindra Bank, at a conference call with the media.

Given its conservative approach towards risk, reports of a merger-and-acquisition-led approach to growth are interesting. Late on Sunday, Mint reported that the private sector lender is in talks with IndusInd Bank for a possible merger. IndusInd Bank has denied the deal, while Kotak Mahindra Bank has refused to comment. Such a merger may bring growth, but it remains to be seen whether Kotak Mahindra Bank will go down this road given its conservative outlook.

Meanwhile, the bank did seem more optimistic than it was in the previous quarter. The lender continued to keep its asset quality intact. Gross bad loans formed just 2.7% of its total loan book, including loans that were not labelled as bad because of regulatory forbearance.

The bank made provisions of 368.6 crore, down 62% from the previous quarter. Specific covid-19 provisions stood at 1,579 crore as of end September. This indicates that the lender’s asset quality is holding up well, analysts at Jefferies India Pvt. Ltd noted. Its provision coverage ratio shot up to 75.6% from 68.4% in the previous quarter, which is a comfort. Given the relatively muted provisioning need, net profit grew by a healthy 27% to 2,184 crore, beating market estimates. Bottom-line growth was also helped by a healthy 31% increase in core interest income.

The lender’s stock gained 2% after the release of the quarterly earnings. Even so, the bank’s shares are still down 18% from its high touched in February and have underperformed HDFC Bank Ltd’s shares, which are down just 5%.

This shows that the loss of growth that the lender had to witness to preserve asset quality may not be sitting well with the market.

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