Kotak Mahindra Q1 net drops 8.5%; asset quality worsens: Key takeaways

Mumbai: Private lender Kotak Mahindra Bank reported a 8.5 per cent decline in net profit for the quarter ended June amid deteriorating asset quality, and said the extent to which Covid-19 pandemic will impact the bank’s operations and financial results is dependent on the future developments, which are highly uncertain.

The bank said its provision and contingencies spiked 3 times to Rs 962.01 crore during the quarter under review.

Here are the key takeaways from Kotak Mahindra Bank’s Q1 results:

Net interest income (NII) rises: Net interest income (NII) increased by 17.81 per cent YoY to Rs 3,723.85 crore.

Asset quality deteriorates: Asset quality of the lender deteriorated during the quarter as the percentage of gross non-performing assets (NPA) stood at 2.70 per cent against 2.25 per cent in the preceding quarter ended March 31.

Likewise, the percentage of net NPAs increased to 0.87 per cent from 0.71 per cent on a quarter-on-quarter basis.

Covid-19 provisions: The private sector lender made an additional Covid-19 related general provision of Rs 616 crore in Q1FY21. Covid-related provisions as on June 30 stand at Rs 1,266 crore (0.62 per cent of net advances). Total provisioning towards advances (including specific, standard and Covid provisions) is higher than the GNPA of the bank, it said.

Covid-19 impact ahead: The continued slowdown in economic activities has impacted lending business, fee income generation from sale of third party products or usage of debit/ credit cards, collection efficiency etc, the company said in its earnings notes.

“This slowdown may impact customer defaults and consequently increase in provisions. There is a high level of uncertainty regarding the time required for life and business to get normal. The extent to which COVID-19 pandemic will impact the bank's operations and financial results is dependent on the future developments, which are highly uncertain…,” it added.

CASA ratio rises: CASA ratio as on June 30, 2020 stood at 56.7 per cent compared to 50.7 per cent as on June 30, 2019. Average Savings deposits grew by 34 per cent to Rs 105,673 crore for Q1FY21 compared to Rs 78,654 crore for Q1FY20. Average current account deposits grew by 10 per cent to Rs 36,066 crore for Q1FY21 compared to Rs 32,679 crore for Q1FY20.

Capital adequacy ratio: Capital adequacy ratio of the bank as per Basel III, as on June 30 is 21.2 per cent and Tier-I ratio is 20.6 per cent. During the quarter, the bank raised Rs 7,442 crore through a QIP issuance of 6.5 crore equity shares.

Analysts’ take: “Kotak Bank trades at higher valuation owing to quality growth, however, in this subdued economic activity, advance growth to reduce and asset quality would be impacted negatively,” said Angel Broking.

“Hence, stock price is likely to consolidate till investors get better clarity on asset quality post moratorium,” he added.