KOTAKBANK Q3 2024-2025 Call Highlights: RBI Challenges, Robust Profits & Portfolio Diversification!

Kotak Mahindra Bank Ltd., one of Indian leading banking and financial services company, in its Q3 earnings call discussed about navigating complex regulatory challenges with the RBI, aiming to be among the top three private sector banks by 2030 through a strategic growth approach targeting 1.5 to 2 times nominal GDP growth. The bank mentioned that it faces significant challenges in unsecured lending, particularly in microfinance and credit cards, which have been impacted by ongoing RBI restrictions. Despite these challenges, the bank said it maintains an aggressive provisioning policy and a diversified loan portfolio to manage asset quality risks. Kotak is actively managing costs through growth in current account deposits and remain in constant communication with the regulator to address concerns. The management maintains a conservative and cautious stance, continuously evaluating and adjusting its business strategy in response to economic volatility.

Kotak Mahindra Bank delivered a robust financial performance in 3Q, with net profit increasing 10% year-on-year, slightly surpassing market expectations. The bank’s Net Interest Income (NII) grew 10%, maintaining a net interest margin of 4.93%. While gross non-performing assets (NPAs) marginally increased from 1.49% to 1.50%, the bank exhibited strong growth in CASA deposits, which rose 15% to INR4.58 lakh crore, with a CASA ratio of 42.3%. Operating profit increased by 13%, and the year-to-date profit reached INR15,534 crore. The bank maintained a solid capital adequacy ratio of 23.4%, with total AUM of INR686,197 crore, a Return on Assets of 2.30%, and a Return on Equity of 12.43%.

Continue Reading: Discover the Vital Insights from Kotak Mahindra Bank Ltd.’s Earnings Call!

Financial/Operational Metrics:

• Total Income: INR16,633 crore, up 15% YoY.
• Net Profit: INR4,701 crore, up 10% YoY.
• Diluted EPS: INR23.64, up 10% YoY.
• Net Interest Income: INR7,196 crore, up 10% YoY.
• Operating Income: INR5,181 crore, up 13%.

Outlook:

• GDP-Linked Growth: Targeting 1.5x–2x nominal GDP.
• Macro Trends: Expecting improved rural cash flows.
• Credit Portfolio: Stabilization expected in credit cards and microfinance over two quarters.
• Focus Areas: Scaling secured loans, mid-market SMEs, and enhancing digital offerings.

 

Analyst Crossfire:

• RBI Restriction Progress & Stress in Asset Segments (Kunal Shah – Citigroup): Discussions with RBI are ongoing, with constant updates and guidance received. Submissions are mostly complete, but the process involves iterative reviews and observations. Timelines for restriction removal remain uncertain. Stress in commercial vehicle loans is noted, but other secured asset segments remain stable. Growth in personal loans continues, supported by strong underwriting and analytics (Ashok Vaswani – CEO, Shanti Ekambaram – President).

 

• Growth Strategy Amid ROA Concerns & Impact of RBI Ban on Growth (Chintan Joshi – Autonomous, Mahrukh Adajania – Nuvama): The focus is on non-interest income and cost optimization to sustain ROA above 2%, despite stress in unsecured lending. Market share growth is targeted at 1.5–2 times nominal GDP. The embargo has constrained unsecured loan and credit card growth, impacting low-cost deposit inflow. Growth will accelerate post-ban, especially in credit cards and personal loans (Ashok Vaswani – CEO).

 

• Future Strategic Goals & Microfinance Slippages (Mahrukh Adajania – Nuvama, Saurabh – JP Morgan): Aspiring to become one of the top three private sector banks by profitability by 2030 through both organic growth and selective acquisitions aligned with strategic and financial criteria. Microfinance contributes significantly to slippages but shows a downward trend. Delinquencies remain a challenge in unsecured NPAs, impacting recovery and credit costs (Ashok Vaswani – CEO, Devang Gheewalla – CFO).

 

• Fee Income Trends & Commercial Vehicle Growth (Piran Engineer – CLSA, Suraj Das – Sundaram): Moderation in fee income growth due to restrictions on incremental credit card business, lower IPO-related fees, and fewer debt capital market transactions. Growth in CV loans driven by construction equipment and large CVs, while retail CV loans show stress aligned with industry trends (Devang Gheewalla – President, Shanti Ekambaram – Whole-time Director).

 

• RBI Circular Impact & Cost of Funds (Abhishek M – HSBC): The October 4th circular has minimal overlap for Kotak; adjustments involve consolidating operations into the Bank, with no major business impact expected. Reduction in cost of funds driven by SA rate cuts, increased current account balances, and growth in ActivMoney deposits (Ashok Vaswani – CEO, Shanti Ekambaram – Whole-time Director, Devang Gheewalla – President).

 

• Kotak Prime Delinquencies & Provisioning Policy Details (Param Subramanian – Nomura, Chintan Joshi – Autonomous): Higher delinquencies in two-wheeler financing, not present in the Bank’s portfolio, explain the divergence in asset quality. Aggressive provisioning is followed, with 100% coverage for unsecured loans within 180 days. Retail loans have a lookout period for recovery potential, while secured loans are evaluated case-by-case (Devang Gheewalla – President).

 

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