Kotak Mahindra Bank Ltd Q2 FY24 Earnings Conference Call Insights

Key highlights from Kotak Mahindra Bank Ltd (KOTAKBANK) Q2 FY24 Earnings Concall

• Q2 Results
  • Net profit increased 24% year-over-year to INR4,461 crores.
  • NIM decreased to 5.22% from 5.34% last quarter due to certain one-offs of about 14-15 bps.
  • Advances grew 21% year-over-year; growth seen across most retail segments.
  • Asset quality improved with GNPA ratio declining to 1.78% from 2.08% last year.
  • Bank has healthy capital adequacy ratio of 21.7% with CET1 at 20.6%.
  • CASA ratio dropped to 53.6% in 2Q, a decrease of 70 bps, as customers shifted from savings to term deposits for better interest rates.
• Macroeconomic Outlook
  • India growth story remains positive but global geopolitics warrant caution.
  • Inflation and resulting rate hikes will keep pressure on growth.
  • Tight liquidity likely to continue – growth versus NIM tradeoff better than growth versus credit growth currently.
• Kotak Securities Update
  • Total income increased to INR962 crores versus INR776 crores last year.
  • Net profit grew 45% year-over-year to INR324 crores.
  • Combined market share increased from 5% to 8.8%.
  • 80% of futures and options volume is through Neo platform.
  • Total average AUM grew 18% Y-o-Y to INR3.36 trillion.
  • SIP inflows grew 22% Y-o-Y to INR10.2 billion in September.
  • Assets under management in mutual fund business grew 28% year-over-year.
• Wholesale Banking
  • Reasonable credit demand from larger corporates and SMEs.
  • Focus on loans over low-yielding bonds in credit substitute book.
  • SME growth moderated due to competitive pressures affecting risk-reward metrics.
  • Overall corporate book remains healthy with negligible credit costs
• Commercial Banking Performance
  • Commercial vehicle industry saw 7% Y-o-Y volume growth in Q2 but muted growth of 2% in H1.
  • Passenger vehicle segment continued strong growth of 33% Y-o-Y.
  • Tractor industry wholesale was down 6.6% Y-o-Y in Q2 due to uneven rainfall.
  • Microfinance business continued momentum with 65% Y-o-Y growth in disbursements.
  • Agri SME growth was muted due to commodity prices and demand
• Kotak Alternate Assets Growth
  • Building platform across 6 asset classes, raising capital globally.
  • Data center fund made $72 million investment in Sify Infinit Spaces.
  • Raised $109 million for private credit fund.
• Kotak Prime and Kotak Life Insurance Business Performance
  • Kotak Prime Q2 PAT at INR208 crores, same as Q1.
  • Demand slow at lower end cars, but SUV and premium segment growing.
  • Kotak Life Insurance Q2 PAT muted at INR247 crores.
  • Individual regular premium business saw slow growth.
• NIM Declines And Outlook
  • NIM declined 15 bps sequentially due to CRR impact, higher liquidity buffer, short-term inflows invested at lower yields. These are unlikely to repeat at same levels.
  • Yield on advances stable, cost of deposits increased by 20 bps.
  • Repricing of deposits largely complete barring any external shocks. Expect maybe 1 more quarter of repricing impact.
• Slippages And Recoveries
  • Slippages at INR1300 crore, dominated by retail segment.
  • Total recoveries and upgrades at INR900 crore including the INR300 crore.
  • Recovery and upgrades about 60-65% of slippages, in line with trends in retail portfolio.
• Growth Trends Across Segments
  • Growth driven more by advances vs credit substitutes now. Mix changing favorably.
  • Corporate growth is increasing, led by asset growth and profitability, not deposit growth or size.
  • Home loans are slowing due to pricing/spread compression, but combined growth with LAP is strong.
  • Product mix management continues based on optimizing growth and profitability.
• Margin Outlook
  • Sharp fall in margins this quarter was partly due to one-off yield drag of 14-15 bps which is unlikely to repeat.
  • 70% of loan book is floating rate linked to repo or MCLR so limited upside from repricing.
  • Bank aims to remain highest NIM in industry; sharpness of margin decline not likely to continue.