Kotak Mahindra Bank declared its financial results for the quarter ended December 2024 on Saturday. It delivered a healthy set of numbers with a good balance sheet growth and a beat on expectations as regards asset quality, evoking a positive response from the market today. Here are the key takeaways:

Asset quality beat

When results of Q2 FY25 were released, the management noted that they were seeing stress in their unsecured portfolios of personal loans and credit cards and that it could play out for next couple of quarters. This was in addition to the stress witnessed in the microfinance segment, as experienced by other industry players. However, for Q3, the management have reported that the delinquencies in the personal loan portfolio have tapered down, those in credit cards have plateaued and those in microfinance, though continuing, there is deceleration in the stress. The management continue to be watchful on these portfolios.

Headline NPA ratios remained flat. Annualised credit cost was up 3 basis points from Q2 FY25 to 68 basis points. Fresh slippages were down sequentially by 11.6 per cent.

Healthy balance sheet growth

The bank’s deposits grew 15.9 per cent year on year, grabbing market share by growing above the system level growth of 9.8 per cent. This was boosted by growth in term deposits of 28 per cent year on year. The bank has been taking efforts to promote its sweep facility for some time now and this quarter, the efforts bore fruit. Sweep term deposits grew 31.1 per cent year on year and 4.5 per cent quarter on quarter. Sweep term deposits constitute about 12 per cent of total deposits. Average current account balances grew 12 per cent year on year, partly offsetting the NIM (net interest margin) loss due to the embargo on the high yielding credit cards and microfinance disbursals being scaled back. Since there is no obligation to pay interest on current account balances, higher current account growth means lower cost of funds. NIM was flat sequentially, up by just 2 basis points at 4.93 per cent.

On the advances front, the overall loan book grew at 15 per cent year on year. The secured mortgage book, the CV/CE (commercial vehicle/construction equipment) book, the SME book and the wholesale book – all grew at a higher rate than the 15 per cent growth of the overall loan book. Growth in personal loans, credit cards and microfinance remained muted for obvious reasons.

Key monitorables

While the credit quality of the unsecured book improved during the quarter, there are issues starting to emerge in the bank’s auto loans, as has been the case with other auto financiers. The management noted that the goods vehicle portfolio is experiencing increase in delinquencies. The CV/CE book accounts for 9 to 10 per cent of the overall loan book. Even in the company’s non-bank subsidiary Kotak Mahindra Prime, the two-wheeler segment is seeing delinquencies rise. The subsidiary’s profit for the quarter declined 9 per cent year on year, partly due to the said reason. The company’s capital market subsidiaries – Kotak Securities, Kotak AMC and Kotak Mahindra Capital continued to do well.

The management noted that they have made good progress on the observations issued by the RBI with respect to the embargo on issuing fresh credit cards and onboarding customers digitally and that they are in constant interaction with the regulator. However, the management opined that it is difficult to comment when the central bank might lift the ban.

At ₹1,920, the stock trades at 2.5 times the consolidated net worth. We had given a hold call when the stock was trading at ₹1,870 levels at a similar valuation. Given the improved asset quality scenario and healthy growth, the stock is inching towards the attractive zone from a long-term perspective.

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