Kotak Mahindra Bank’s profit rises 15%

India’s second-largest bank by market capitalisation today posted a 15% rise in profit for the final quarter of FY18, coming in at Rs 1,124 crore as against Rs 976 crore in the same period the previous year. The growth in profit was backed by a 19% jump in net interest income (NII), rising to Rs 2,580 crore for Q4 FY18 from Rs 2,161 crore a year ago. Net interest margin too came in at a healthy 4.35%.

Although the profit missed Street estimates, the bank seemed to exceed expectations on other fronts. Brokerage firms Sharekhan and HDFC Securities had expected the bank’s NII to grow around 17% YoY. In a note released shortly after the bank reported its results, HDFC Securities said a spike in provisions on a QoQ basis due to a significant rise in mark-to-market provisions was behind the lower than expected profit. The note went on to say that the bank’s miniscule SMA2 outstanding figure, at Rs 72 crore, showed that asset quality was set to improve further.

On the loan growth front too, the bank clocked in steady growth, with loans rising 24.7% YoY to Rs 1.69 lakh crore from Rs 1.36 lakh crore in the corresponding quarter last year. CASA ratio stood at 50.8%, rising from 44% in the previous year.

In terms of asset quality, Kotak Mahindra Bank’s GNPA ratio stood at 2.22%, down from 2.59% a year ago. Net NPA ratio came in at 0.98%, decreasing from 1.26% in Q4 FY17. In light of the recent regulatory changes with respect to NPA recognition, a stable asset quality picture could be just what the investors need to maintain their confidence in the company.

The company’s focus on ramping up digital banking services too seems to be paying off. The bank said transactions on mobile grew by 114% in terms of volume and 76% in terms of value when compared to the year-ago quarter. The share of recurring deposits sourced digitally too stood at a high 88%. Total payment gateway transactions too grew 76% in value terms on a YoY basis. Transactions on its in-app store, increased a whopping 402% in terms of volume in March 2018.

Kotak Mahindra Bank’s stock reacted positively to the Q4 results, rising around 2% on the back of steady numbers and stable asset quality. The stock has gained over 20% on the BSE in 2018 so far compared to a 3.9% rise on the Sensex.

Speaking to the media, Uday Kotak, who has been re-designated as the MD & CEO of the bank, said he sees provisioning costs trending down this year. He added that he expects 20% loan growth in FY19. However, he did not comment on the speculation that Kotak Mahindra Bank could acquire Axis Bank, whose CEO Shikha Sharma recently announced an early departure.