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Kotak Mahindra Bank reported a consolidated PAT of ₹5,044 crore (+13% YoY) for Q2 FY25, driven by strong subsidiary performance (capital markets +52%, AMC +58%, insurance +50%). The bank's customer assets grew 18% YoY to ₹4.5 lakh crore, but NIM compressed 11bps QoQ to 4.91% due to a shift toward secured lending amid the RBI embargo on digital credit card issuance. Deposit growth was healthy at 16% YoY, with CASA stable at 43.6%. Credit costs rose to 65bps annualized, driven by stress in unsecured retail (credit cards) and microfinance, which management expects to persist for 2-3 quarters before improving. The RBI's draft circular on investments and the ongoing tech embargo remain key overhangs. Management guided for margin improvement from savings rate cuts and the StanChart portfolio acquisition, but near-term growth is constrained by regulatory restrictions.
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Guidance to track
- The 50 bps cut on savings deposits up to ₹5 lakh, effective Oct 17, is expected to add about 4 bps to NIM.
- The acquisition of Standard Chartered's personal loan portfolio will add about 2 bps to average asset yield.
- Management expects credit costs to stabilize and then decline over the next 2-3 quarters as recoveries from secured and rural books offset slippages.
- CEO Ashok Vaswani reiterated the aspiration to become the third-largest private sector bank in India over five years, through organic and inorganic growth.
Risks flagged
- The tech embargo restricts digital onboarding for credit cards, limiting growth in unsecured retail and pressuring NIM.
- Credit card and MFI slippages remain elevated due to over-leveraging and rural income slowdown; recovery may take 2-3 quarters.
- The draft circular may require consolidation of lending subsidiaries into the bank, impacting capital allocation and business models.
- NIM compressed 11bps QoQ due to shift to secured assets; further rate cuts could pressure yields, though deposit costs may lag.
Key quotes
- I've always talked about Kotak being a financial conglomerate, and a conglomerate compared to a plane flying with multiple engines. And this quarter, if you see, three of the four engines grew at over 50% year on year.
- Our first priority is to fix our technology estate and get out of jail.
- We are working exceedingly hard on systematically knocking out any kind of points of failure... At some stage, the RBI will determine that we've made enough progress to lift the embargo off us.
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