Release Date: October 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kotak Mahindra Bank Ltd (BOM:500247, Financial) reported a group profit after tax of INR 5,044 crores for Q2 FY25, marking a 13% year-on-year increase.
- The bank's Capital Markets, Asset Management, and Insurance segments each grew over 50% year-on-year, showcasing strong performance across multiple business lines.
- Deposits grew by 16% year-on-year, with a CASA ratio stabilizing at 43.6%, which is considered industry-leading.
- The bank made significant progress on the technology front, including the beta launch of a new customer-facing mobile app.
- Kotak Mahindra Bank Ltd (BOM:500247) maintained a strong capital adequacy ratio at the group level of 22.6%, with CET1 at 21.7%.
Negative Points
- The bank experienced a dip in its retail unsecured asset business, with its share dropping slightly to just over 11%, partly due to a tech embargo affecting the credit card business.
- There was a noted increase in credit stress within the credit card business due to overleveraging by certain customers.
- The bank's net interest margin (NIM) decreased by 11 basis points to 4.91% due to a shift towards secured assets.
- The microfinance sector experienced a 4% degrowth, with expectations of continued stress over the next two to three quarters.
- The bank is under a supervisory action by the RBI, which includes restrictions on digital onboarding, impacting growth in certain segments.
Q & A Highlights
Q: Can you elaborate on your objective to become the #3 private bank in India and the growth strategy to achieve this?
A: Ashok Vaswani, CEO, explained that the goal is set for the next five years, focusing on both organic and inorganic growth. The immediate priority is to fix the technology estate. Investments in technology are being made to enhance customer experience and scale. The bank plans to manage margins by aligning rates and growing high-yielding books like unsecured retail and rural finance once the embargo is lifted.
Q: What factors contributed to the decline in margins over the last two quarters?
A: Devang Gheewalla, CFO, noted that the decline in margins to 4.91% was primarily due to a shift towards secured loans, which generally have lower yields. The embargo on credit cards also impacted margins. Despite this, Kotak Mahindra Bank still leads the sector in margins.
Q: How do you view the impact of RBI rate cuts on margins, and what measures are in place to manage this?
A: Devang Gheewalla stated that while the timing and extent of RBI rate cuts are uncertain, the recent savings account rate cut will improve margins by about 4 basis points. The acquisition of Standard Chartered's unsecured book will also add to asset yields. The bank will continue to adjust the asset mix and maintain deposit ratios to manage margins.
Q: What is the status of the RBI's supervisory action, and when do you expect restrictions to be lifted?
A: Ashok Vaswani mentioned that the bank is working hard to address the RBI's concerns, with external auditors validating their progress. However, the decision to lift the embargo is ultimately up to the RBI, and the bank is focused on systematically resolving any issues.
Q: Can you provide insights into the recent acquisition of Standard Chartered's personal loan portfolio?
A: Shanti Ekambaram, Whole Time Director, explained that the acquisition aligns with Kotak's affluent segment strategy. The bank conducted thorough due diligence and sees the acquisition as a strategic fit, providing opportunities for upselling and cross-selling to approximately 95,000 new customers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
