India’s Kotak Mahindra Bank misses quarterly profit estimates

MUMBAI: Indian private lender Kotak Mahindra Bank, opens new tab reported a lower-than-expected profit for the second quarter on Saturday as it set aside more funds for potential bad loans.

The country’s third-largest private lender by market capitalisation posted a standalone net profit of 32.53 billion rupees (USD370.1 million) for the three months ended on September 30, compared with 33.44 billion rupees a year earlier.

Analysts had expected a profit of 34.49 billion rupees, according to data compiled by LSEG.

Funds kept aside for potential bad loans and other losses rose 43 percent to 9.47 billion rupees, weighing down the bottom line.

Net interest income rose 4 percent to 73.11 billion rupees, aided by a 14 percent rise in loans. The lender’s corporate loans, which make up a fifth of its loan book, grew the fastest at 17 percent, while consumer loans, with a 47 percent share of total loans, grew 16 percent.

“Our focus will now be to gradually build back our retail unsecured business,” CEO Ashok Vaswani told a media call.

Deposits grew 15 percent during the quarter.

Indian lenders have seen a gradual pickup in credit demand over the last few months after several slower quarters. Analysts expect the recovery in the pace of loans to be more robust in the second half of the fiscal year, helped by recent tax cuts.

“Other than credit cards, we are seeing disbursement growth coming back in personal loans and steadily improving the microfinance business,” Devang Gheewalla, the bank’s chief financial officer, said.

Kotak Mahindra Bank’s net interest margin, a key measure of profitability, was lower at 4.54 percent against 4.91 percent in the corresponding quarter last year.

The Reserve Bank of India has cut its benchmark interest rate by a cumulative 100 basis points so far this year to spur consumption and investment. For banks, rate cuts tend to hurt in the short term as lenders typically pass them on to lending rates, while deposit rates adjust with a lag, hitting margins.

The lender’s asset quality improved, with its gross non-performing asset ratio at 1.39 percent at the end of September, compared with 1.48 percent for the previous three months and 1.49 percent a year earlier.

The bank on Saturday also announced the reappointment of C.S. Rajan as chairman of the board until October 2027 after getting the Reserve Bank of India’s approval.