Kotak Mahindra Bank beat estimates with a 26% rise in profit, helped by lower provisions and strong asset quality. Its margin narrowed because of an inflow of foreign currency deposits from non-resident Indians, which the RBI has been encouraging to support the rupee.
Kotak Mahindra Bank reported consolidated net profit of ₹5,645 crore for the September quarter on Saturday, up 26% from ₹4,468 crore a year earlier and 3% higher than the June quarter. The standalone bank’s profit rose 29% to ₹4,212 crore from ₹3,253 crore.
The growth came from two sources. Net interest income, the difference between what the bank earns on loans and pays on deposits, rose 16%. Provisions for bad loans fell. Asset quality improved further, with gross non-performing assets at 1.04%. Return on assets was 1.92% and return on equity 11.65%.
The margin story
The bank’s net interest margin narrowed to 4.31%. Kotak explained that the main reason was large inflows of FCNR(B) deposits, which are foreign currency deposits held by non-resident Indians with Indian banks.
This connects to the rupee. With the rupee near record lows and India’s foreign exchange reserves falling, the RBI has introduced measures to encourage NRIs to deposit foreign currency with Indian banks. These deposits bring dollars into the country and support the rupee. For banks, though, they are usually lower-margin money: they come in large amounts, often have to be held in lower-yielding assets, and dilute the bank’s overall margin.
In effect, Kotak is giving up some margin to help bring in foreign currency deposits that support the rupee. Similar effects may appear at other banks that took large FCNR(B) inflows this quarter.
Kotak’s capital position is very strong. Its capital adequacy ratio is 21.9%, with a core equity ratio of 21.4%, well above regulatory requirements. That leaves it plenty of room to grow its loan book if demand picks up.
The shares closed 1.49% lower at ₹430.50 on Friday, before the results, giving the bank a market value of about ₹4.28 lakh crore.
Bank of India: public sector banks keep improving
On Friday, state-owned Bank of India reported a 25% rise in September-quarter net profit to ₹3,202 crore. Operating profit rose 33% to ₹5,089 crore. Net interest income grew 18.5% to ₹7,007 crore, and non-interest income rose about 25% to ₹2,770 crore. Its total global business grew 21% to ₹18.93 lakh crore.
Asset quality improved, with gross NPAs at 1.60%. Return on equity was 16.36%, higher than Kotak’s, which shows how much public sector banks have recovered from their bad-loan problems of a decade ago. First-half profit rose 30% to ₹6,270 crore.
What this means for the sector
The two results together suggest Indian banks are in good health despite a difficult economic backdrop. Bad loans are low, provisions are falling and capital is plentiful. The main pressure is on margins: the RBI’s rate hike this month should eventually let banks charge more on loans, but deposit costs, including the cost of rupee-support deposits, are also rising.
The next few quarters will show whether loan growth holds up as interest rates rise. Bankers will be watching for any rise in defaults among small businesses and retail borrowers affected by higher fuel and borrowing costs.
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