Story Behind Kotak Mahindra Bank Q2FY23 Result

Financial Results:

Kotak Mahindra Bank Ltd. has expanded its total advances by 25% YoY. This increase in total advances have contributed to the increased operating profit.

It is evident that part of the increase in profitability stems from the reduction of Provisions & Contingencies amount by 68%. That would explain why the YoY growth for Operating Profit is 14% whereas the YoY growth for Profit After Tax is 27%. 

₹ Cr.	Q2FY23	YoY%
Net Interest Income	5,099	27%
Operating Expenditure	3,486	28%
Operating Profit	3,568	14%
Provisions & Contingencies	137	(68%)
Profit After Tax	2,581	27%

Key Ratios:

Net Interest Margin has increased on a YoY basis. That is supported by the fact that the return on assets has also seen an increase. This showcases the reasoning behind the bank’s increased profitability.

However, most of the growth in deposits have come from Term Deposits which has led to a decrease in the Share of CASA Deposits. Along with that, the Capital Adequacy Ratio has slightly fallen indicating that the available capital relative to the bank’s risk weighted assets & current liabilities has fallen.

Percent	Q2FY23	Q2FY22
Net Interest Margin	5.17%	4.45%
CASA Ratio	56.2%	60.6%
Provision Coverage Ratio	73.7%	67.5%
Capital Adequacy Ratio	22.6%	23.1%
Return on Assets	2.61%	2.36%

Asset Quality:

There seems to be an improvement in the asset quality of the firm. This is reflected by the reduction in the bank’s non performing assets. Both Gross Non Performing Assets (GNPA) as well as Net Non Performing Assets (NNPA) have reduced.

As discussed earlier the reduction in Provisions contributed to the profitability of the firm. Provision Coverage Ratio indicates that the reduction in the provision amount was made because of the improvement in asset quality and not for any other reason. The reduction in Provision and Contingencies (other than Tax) is a sensible move considering even after the reduction, the Provision Coverage Ratio (PCR) is still increasing quarter after quarter.