Kotak Mahindra Bank has recorded strong profit growth, driven by a 33 per cent expansion in its standalone balance sheet. While the bank's core operations saw a 46 per cent growth in December quarter net profit, subsidiaries trimmed the growth to 21 per cent at the consolidated level. The financing operations of the bank did quite well, but capital market related activities routed through Kotak Securities (broking), Kotak Mahindra Capital (Investment banking) and Kotak Asset Management Company (mutual fund) saw profit declines.
Pressure on NIM
Kotak Mahindra Bank's advance book was driven by corporate loan segment (greater than Rs 5 crore loans).The share of corporate loans in total loans for the bank improved from 46.5 per cent December 2010 to 52 per cent in December 2011.
The majority of these were short-term loans, which include working capital and trade finance.
The rising proportion of corporate loans, which carry lower interest than retail products, put pressure on net interest margins (NIM). The consolidated NIM declined from 5 per cent a year ago to 4.7 per cent in December quarter.
To maintain balance sheet growth, the bank also had to resort to higher borrowings and term deposits that also impacted the NIM.
Post the savings rate deregulation the bank had hiked the interest on savings account. This resulted in higher inflows into this relatively low-cost source of funds this quarter, and savings balances grew by 24 per cent from September 2011.
Even as the growth in advances was high (especially in the corporate segment), the bank also improved its asset quality.
The Gross NPA ratio was down from 2.5 per cent to 1.5 per cent year-on-year. The restructured assets accounted for 0.11 per cent of total advances.
Good asset quality helped the bank to limit its provisions which declined 28 per cent year-on-year.
Subsidiary businesses
At the consolidated level, 85 per cent of the profit before tax was contributed by financing, compared with 76 per cent in December 2010.
As the capital market segment's contribution to the profit before tax fell from 15 per cent in December 2010 to 6 per cent in December 2011, the insurance business emerged as the second biggest contributor to the profits.
Profits from the life insurance business improved from Rs 24 crore in the December 2010 quarter to Rs 47 crore in December 2011, partly due to rising renewal premium.