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What the record says.
Kotak Mahindra Bank reported a 7% YoY decline in standalone PAT to INR 3,282 crore, driven by margin compression and elevated credit costs. NIM fell to 4.65% from 5.02% a year ago due to repo rate cuts and a shift in asset mix. Credit costs rose to 90 bps, led by stress in microfinance (peaked in Q1), retail CV, and seasonal rural factors. Management expects NIM to stabilize in H2 as deposit repricing and CRR cuts offset asset yield drag. MFI credit costs are expected to decline, while cards and personal loans have stabilized. Risks include continued stress in retail CV and slower-than-expected economic recovery. The bank maintains a cautious stance on unsecured lending, targeting a 15% share over time.
Colored figures show movement against the previous available record.
Guidance to track
- Management expects NIM to stabilize in the second half of the year as deposit repricing and CRR cuts offset asset yield drag, assuming no further repo rate cuts.
- Microfinance credit costs have peaked in Q1 and are expected to show a declining trend in coming quarters as fresh disbursements resume cautiously.
- Credit card credit costs have plateaued and should start declining in the second half of the year.
- Aspirationally, the bank aims to grow retail unsecured advances to 15% of total advances, from current 9.7%, through MFI, personal loans, and credit cards.
Risks flagged
- Stress in the retail commercial vehicle segment, particularly goods transportation, is expected to continue for another quarter or two, with management moderating disbursements.
- An analyst questioned whether the bank's runoff mode in microfinance could reduce borrowers' willingness to pay, potentially leading to higher loss rates. Management acknowledged the risk but expressed confidence in new underwriting models.
- An analyst flagged that economic growth is a key variable for MSME debt servicing. Management said they are monitoring closely but noted the portfolio is secured and holistic customer view helps.
- The full impact of the June repo rate cut will be felt in Q2, and NIM may bottom out only then before recovering in H2. This was highlighted in Q&A.
Key quotes
- We believe it has peaked in this quarter and we expect it to be stable and hopefully better in the second half of the year.
- Unless there are further rate cuts, we expect the NIM to stabilize over the year.
- The MFI stress started building and reflecting in the books from the Q3 of last year... clearly, the gross NPA, which sort of flowed during Q3, Q4, given the provisioning norms of 75%, 25%, I think all accumulated towards the Q1 hit.
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