Kotak Mahindra Bank (KMB) has reported a robust Q1FY24 PAT of Rs 34.5 billion, surpassing expectations by approximately 5%, primarily driven by increased other income. The bank’s return on assets (RoA) stands at a healthy 2.8%. During the quarter, deposit growth saw a significant jump of 6% q-o-q, mainly driven by a 15% q-o-q increase in term deposits, although there was a decline in the CASA ratio.
One concerning aspect in the report is the substantial rise in slippages and credit costs, which can be attributed partly to the higher share of unsecured loans, now accounting for 10.7% of the portfolio compared to 7.9% y-o-y. Despite the challenges, the bank is expected to maintain its loan growth estimates at approximately 18% CAGR for FY24-FY25estimates, with credit cost estimates ranging between 50-60bps. The revised projections for FY24E/ FY25E PAT are up by 2-3% due to higher other income, resulting in estimated RoAs of around 2.2% and 1.9% for FY24e and FY25e.
Loan growth remained reasonable at 2.7% q-o-q and 17.3% y-o-y. The share of unsecured loans, including MFI, increased to 10.7%. However, there was a softening in the growth of agri and SME loans. Savings balances declined y-o-y for the fourth consecutive quarter, leading to a dip in the CASA ratio to 49%. On a positive note, the bank witnessed a significant increase in term deposits (including TD sweep) with a growth rate of 15% q-o-q and 48.5% y-o-y. However, after rising for six consecutive quarters, the NIM cooled off by 18 bps q-o-q, reaching 5.57%. Looking ahead, there are concerns about rising pressure on core NIM due to the cost of deposits and limited expansion of core yield, especially considering the bank’s 57% share of EBLR loans as of Q4FY23.