Private sector lender Kotak Mahindra Bank on Saturday reported a 26% rise in net income to Rs 2,071.15 crore in the June quarter, buoyed by record margins and lower bad debts.
On a consolidated basis, the city-headquartered financial services group, which also engages in life and non-life insurance, equity brokerage, asset reconstruction and AIF, among others, recorded a 53% increase in its net profit to Rs 2,755 crore in the June Quarter over the corresponding period a year ago, the bank said.
The higher profitability is due to the bank recording a loss of over Rs 800 crore on treasury operations.
Chief Financial Officer Jaimin Bhatt declined to detail how many G-secs (government securities) the bank holds beyond the regulatory requirement of 18%.
In a scenario of weak credit demand or bank credit, banks invest their funds in government securities which are highly liquid assets and the average statutory liquidity ratio at the system level is above 23%.
Explaining the relatively small amount of losses in the bond market, co-chief executive Dipak Gupta told PTI that up to 61% of his bond holdings are in the AFS (available for sale) category and only 39% in the segment held to maturity, which helped the bank avoid a larger hit.
Total income for the quarter improved to Rs 8,582.25 crore from Rs 8,062.81 crore, boosted by an increase in interest income to Rs 7,338.49 crore, from Rs 6,479.78 crore it a year ago.
The main indicator of profitability, net interest income (NII) rose to Rs 4,697 crore from Rs 3,942 crore, up 19% on a near record net interest margin (NIM) of 4.92 %.
NIM is the difference between what a bank earns by lending after paying depositors.
This high margin is despite the bank seeing its low-cost CASA ratio (current and savings account ratio) fall by more than 200 basis points to 58.2% during the quarter.
On the asset quality front, gross non-performing assets fell from 3.56% to 2.24%, while net NPAs fell to 0.62% from 1.28%.
Provisions for bad debts and contingencies increased several fold to Rs 23.6 crore in the quarter from Rs 934.8 crore in the prior year quarter and the provision coverage ratio stood at 72.6%.
Advances increased by 29% to Rs 2,80,171 crore. About 77% of the incremental loans this quarter were unsecured, which are typically personal loans and retail credit cards and microfinance.
Gupta said 77% of unsecured loans are not sustainable or sound, but this is mainly due to a weak base and will eventually decline.
Gupta and Bhatt pointed to 20% loan growth for the year, with a caveat that if interest rates don’t soar.
They also admitted that despite loan growth of 29%, their wholesale portfolio is still not healthy.
Among the many subsidiaries, Kotak Mahindra Life Insurance reported Rs 248 crore net income vs Rs 243 crore, Kotak Securities at Rs 219 crore vs Rs 236 crore, Kotak Mahindra Prime at Rs 157 crore vs Rs 79 crore, and Kotak Mahindra AMC recorded Rs 106 crore against Rs 107 crore.