Kotak Mahindra Bank’s Q2 Profit Rises 5% Despite RBI Restrictions

Kotak Mahindra Bank’s Q2 Profit Rises 5% Despite RBI Restrictions

Kotak Mahindra Bank shares drop

Kotak Mahindra Bank’s Q2 Profit Rises 5% Despite RBI Restrictions Kotak Mahindra Bank’s shares dropped by over 4% to Rs 1,785 on October 21 after its Q2 results fell short of market expectations. The bank’s performance was affected by weaker loan growth, increased slippages, shrinking margins, and restrictions from the RBI on its digital banking operations. Brokerages have flagged these issues as ongoing concerns.

Jefferies maintained a ‘hold’ rating with a target price of Rs 2,080, emphasizing that clarity on the RBI’s embargo is crucial for future prospects. Earlier this year, the RBI barred the bank from onboarding new customers through its digital channels and issuing new credit cards due to deficiencies in IT inventory management.

Goldman Sachs also expressed caution, noting disappointing asset quality trends with higher-than-expected slippages and credit costs. Despite this, they kept a ‘buy’ rating with a target price of Rs 2,286, citing healthy loan growth and pre-provision operating profit. Kotak Mahindra Bank’s net profit for Q2FY25 rose 4% year-on-year to Rs 3,344 crore, below the expected Rs 3,494 crore. Net interest income grew 11% to Rs 7,020 crore, though net interest margins fell to 4.91% from 5.22% the previous year.

The key disappointment in Kotak Mahindra Bank’s Q2 results was its asset quality. Net NPAs rose to 0.43% from 0.37%, while gross NPAs decreased to 1.49% by September 2024, down from 1.72% a year earlier.

JPMorgan analysts pointed to asset quality strain, citing a 1.2% rise in net slippages, particularly in the credit card and microfinance (MFI) segments. CASA growth remained subdued at 4% year-on-year, with total deposits and loan growth both at 15% YoY. Despite these concerns, JPMorgan maintained an ‘overweight’ rating with a target price of Rs 2,030 per share.

Kotak Mahindra Bank’s Q2 Profit Rises 5% Despite RBI Restrictions  Kotak Mahindra Bank’s shares are likely to be in focus today after the private sector lender reported a 5% year-on-year (YoY) increase in Q2 profit, reaching Rs 3,344 crore.

For Q2FY25, the bank’s net interest income (NII) rose 11% YoY to Rs 7,020 crore, compared to Rs 6,297 crore in the same period last year. However, the net interest margin (NIM) dropped to 4.91%, down from 5.22% in Q2FY24.

By the end of September, the gross NPA ratio improved to 1.49% from 1.72% YoY, while net NPAs increased to 0.43% from 0.37%. The bank’s capital adequacy ratio under Basel III was 22.6%, with a CET1 ratio of 21.5%, including unaudited profits.

The bank’s standalone return on assets (ROA) for Q2FY25 (annualized) was 2.17%, down from 2.45% in Q2FY24. Total deposits grew 16% to Rs 446,110 crore, with a CASA ratio of 43.6%, slightly higher than 43.4% in Q1. Advances rose 17% YoY to Rs 419,108 crore.

On a consolidated basis, Kotak’s profit after tax (PAT) increased by 13% YoY to Rs 5,044 crore, with total assets under management (AUM) at Rs 680,838 crore, up 37% YoY from Rs 498,342 crore in Q2FY24.

Kotak Securities’ PAT fell to Rs 324 crore from Rs 400 crore YoY, with market share decreasing to 11.6% from 12.2%. Meanwhile, Kotak Mahindra AMC’s PAT climbed to Rs 197 crore from Rs 124 crore sequentially, with AUM rising 37% YoY to Rs 680,838 crore.