Microfinance stress, RBI embargo weighed on Kotak Bank’s Q4 profitability | Mint

Mumbai: Kotak Mahindra Bank’s profitability in the fourth quarter was dragged by stress in its microfinance portfolio and consequently slower growth in its agriculture and rural portfolio, even as the lender’s operational metrics remained largely stable.

The private sector lender’s net profit in the March quarter fell 14% on-year to ₹3,552 crore. Sequentially, though, profit after tax was 7.5% higher.

“The microfinance business has gone through a very tough time, and that is what has contributed to the higher losses,” Kotak Mahindra Bank’s managing director and chief executive officer Ashok Vaswani said in the post-earnings conference.

Growth in the retail portfolio was also slow as the lender was unable to expand its high-yielding credit card book because of the Reserve Bank of India’s embargo on the bank onboarding new customers. The embargo was lifted after 10 months in February.

Vaswani said the bank’s personal loan book saw good growth led by its acquisition of Standard Chartered India’s personal loan portfolio in January. The corporate loan book also grew “really well”, he said.

Customer assets, including advances and credit substitutes, rose 13% on-year to ₹4.8 trillion at the end of March. Loans, including inter-bank participation certificates (IBPC) and Bill Rediscounting Scheme (BRDS), were at ₹4.4 trillion, also up 13% on-year.

Consumer loans were up 17% largely led by strong growth in mortgage, business banking and personal loans, whereas growth in the credit card business was 7% lower on-year.

Commercial loans were up 6% on-year, with commercial vehicle, commercial equipment, and tractor finance seeing good growth. 

However, Kotak Mahindra Bank’s agriculture portfolio grew a muted 1% on-year and its retail microcredit loan portfolio fell 33%. Corporate loans grew 6% and SME loans by 31%.

“Advances sort of reduced, but what we did was, we turned to build the credit substitutes such as commercial papers (CPs) and bonds etcetera,” deputy MD Shanti Ekambaram said, adding that the bank let go of some wholesale segments given the high pricing competitiveness in the segment.

A focus on unsecured credit

Vaswani said Kotak Mahindra Bank aims to grow its share of unsecured and personal loans to around 15% of its advances, compared with 10.5% now and around 12.7% before the credit card embargo and hit on microfinance.

Unsecured retail advances, including retail microcredit, comprised 10.5% of net advances in the fourth quarter, mostly unchanged from a quarter ago and lower than 11.8% in the corresponding quarter of the previous year.

Overall loan growth in 2025-26 is expected to be 1-1.5 times of GDP growth, Vaswani said, adding that Kotak Mahindra Bank aimed to maintain its credit-deposit (CD) ratio at 85-87%. The CD ratio was 85.5% on 31 March.

Net interest income (NII) was up a muted 5% on-year at ₹7,284 crore. Net interest margin for the quarter was 4.97%.

Chief financial officer Devang Gheewalla said NIM in the fourth quarter was supported by cuts on saving account rates and a financial year-end rise in average current account balances. 

Going forward, while higher lending in the unsecured credit card space would aid margins, overall, the margins would remain under pressure as the repricing on the liability side plays out, he said.

The bank’s gross non-performing assets ratio was 1.42% as of 31 March, worse than 1.39% a year ago but better than 1.50% in the previous quarter. Net NPA ratio at 0.31% had improved from 0.41% a quarter ago and 0.34% a year ago.

Slippages during the fourth quarter were elevated at ₹1,488 crore, of which ₹135 crore were upgraded during the quarter itself. The bank wrote-off loans worth ₹873 crore during the quarter and saw recoveries and upgrades of ₹747 crore. Provisions were also high at ₹909 crore, significantly up from ₹794 crore a quarter ago and ₹264 crore a year ago.