India Kotak Mahindra Bank’s Q4 profit drops more than expected on higher provisions

MUMBAI: India’s Kotak Mahindra Bank on Saturday reported a larger-than-expected 14% drop in quarterly profit as provisions for potential bad loans surged, offsetting solid loan growth.

The Mumbai-based private lender’s standalone net profit - which excludes earnings from its subsidiaries - rose to 35.52 billion rupees ($420.36 million) in the three months to end-March.

Analysts had expected the bank to report a profit of 36.25 billion rupees, as per LSEG estimates.

Kotak’s provisions and contingencies, or funds set aside for potential bad loans, tripled to 9.09 billion rupees.

Its gross non-performing assets ratio, a key gauge of asset quality, was 1.42% at the end of March compared with 1.50% at the end of December.

Kotak’s loans rose 13% in value terms in the March quarter, while deposits were up 15%.

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In February, the Reserve Bank of India (RBI) lifted a 10-month ban on Kotak that barred the lender from issuing credit cards and enrolling clients digitally due to gaps in its IT systems.

Its net interest income, the difference between what a bank earns on loans and pays out on deposits, rose 5% to 72.84 billion rupees.

The net interest margin shrank to 4.97% from 5.28% a year earlier, but was higher than 4.93% reported in the previous quarter.

In a falling interest rate scenario, lenders typically pass on central bank rate cuts to borrowers, making loans more attractive, but the pass-through to deposit rates comes with a lag, temporarily compressing margins until the adjustment is fully reflected across both sides of the balance sheet.

A majority of Kotak’s loan book is linked to the external benchmark, putting its margins under pressure. Shares of the lender ended 0.9% lower on Friday ahead of the results.