Kotak Mahindra Bank – NPA Issue Looms Large

Kotak Mahindra Bank announced its March 2014 quarter and FY14 results. On consolidated basis the bank posted a profit after tax of Rs 676.30 crore as against Rs 674.01 crore posted in March 2013. The performance has been rather better on the sequential basis, as for the December quarter it had posted a bottomline of Rs 591.25 crore. While the bottomline stood marginally above the preceding year the asset quality for the quarter worsened on yoy basis. The gross NPAs increased to 1.63% from the levels of 1.27% in March 2013. Even after higher provisioning, the Net NPAs stood at 0.88% against 0.55% in March 2013.As for the whole year the bank posted profit of Rs 2465 crore for FY14 as against Rs 2188 crore in FY13.As regards to the operational performance, the net interest margins for FY15 stood at 4.97% as against 4.70% in FY13. The return on assets remained unchanged at 2.1%.

If we take a look at the performance of different units the bank on standalone basis did not perform well. While for the quarter, the PAT declined to Rs 407 crore as against Rs 436 crore in March 2013. On yearly basis however the bottomline increased to Rs 1503 crore from Rs 1361 crore. It was Kotak Mahindra Prime which posted good performance. For March 2014 quarter it posted a PAT of Rs 126 crore as against Rs 119 crore in the March 2013.

It was the Kotak Mahindra Old Mutual Life Insurance which actually was a star performer. It posted a PAT of Rs 65 crore for March 2014 quarter as against Rs 58 Crore in March 2013 quarter. The yearly performance was best with FY14 PAT standing at Rs 239 crore (Rs 190 crore in FY13).

In terms of RBI circular, the bank had opted to recognise MTM losses in the financial year and did not transfer any security to HTM. The bank has recognised net depreciation on HFT/AFS portfolio aggregating to Rs 175.08 crore including depreciation on non-SLR of Rs 11.53 crore. Had the Bank chosen to transfer all SLR securities to HTM, the profit before tax for FY14 would have been higher by Rs 163.55 crore.  The CAR as per Basel III stood at 18.8% as on March 2014.

Advances as on March 31, 2014 were up 9% YOY to Rs 53,028 crore (Rs 48,469 crore as on March 31, 2013). Without considering CV/CE, the growth in advances was 17% YoY. The restructured loans considered standard as on March 31, 2014 were Rs 10 crore which is 0.02 % of net advances (Rs 8 crore as March 31, 2013, 0.02% of net advances). Savings deposits as on March 31, 2014 grew by 39% to Rs 10,087 crore from Rs 7,268 crore as on March 31, 2013. Deposits as on March 31, 2014 were up 16% YOY to Rs 59,072 crore (Rs 51,029 crore as on March 31, 2013)

Capital adequacy ratio of the bank including audited profits as per Basel III as on March 31, 2014 is 18.83% and Tier I ratio is 17.77%. The provision coverage ratio on non-performing assets as on March 31, 2014 is 55.5%. The results have been below street Estimates and we expect some profit booking to happen in the counter.